Sole Trader

This is the simplest and easiest form of business structure.  The owner will utilise their own TFN, and then register for an ABN and potentially GST. They have their place and are normally reserved for micro / hobby type businesses.

Pros:

• Cheap to establish
• Lower compliance costs

Cons:

• Unlimited liability for the sole owner
• Inflexible for tax purposes

Partnership of Individuals

Normally involves two or more parties and each can have varied ownership interests. A partnership will need to apply for its own TFN, ABN and potentially GST registration. Very popular decades ago for mum and dad businesses, but their popularity has dropped due to deficiencies in asset protection.

Pros:

• Cheap to establish
• Lower compliance costs
• Accommodate 2 or more parties

Cons:

• Partners are joint and severally liable for liabilities for the partnership
• Unlimited liability for the partners
• Can be inflexible for tax purposes
• Cumbersome when it comes to partners entering and exiting
• Potential for conflict between partners

Private Company

Is a separate legal entity created through ASIC. Each company needs a director and shareholder. Multiple directors and shareholders are possible.

Pros:

• Offer a larger degree of asset protection as company assets are separate from owners assets
• A larger presence in the market place
• Ability to retain profits and declare dividends
• Ability to have multiple owners now and in the future
• 30% tax rate

Cons:

• Greater cost to establish compared to a sole trader
• Not eligible for the 50% CGT discount
• More corporate regulation
• Difficulty getting tax free gains out of the company
• Poorer tax outcomes when holding  appreciating assets
• Complex rules around borrowing from the company
• Work cover/superannuation concerns

Discretionary Trusts

By far the most popular and efficient structure in most circumstances.  Each trust needs a trustee, which is normally a company. The trust is operated for the benefit of the beneficiaries.

Pros:

• Offer a larger degree of asset protection
• A larger presence in the market place
• Greater flexibility to split income with family (subject to the type of income derived)
• Eligible for the 50% CGT discount
• Equity owners can come in and out with ease
• Estate planning friendly

Cons:

• Greater cost to establish compared to a sole trader
• More corporate and ATO regulation

With our extensive knowledge and expertise, we can help you with selecting a suitable business structure. Arrange your free no obligation meeting.