Your business’s structure might not be top of mind when nutting out your business plan, but it should be – choosing between being a sole trader or a company, a trust or a partnership is more than just choosing a title for the ATO. It can have a big impact on your tax, your personal liability, and your ongoing costs.
A lot of one man or one woman band businesses start out as sole traders because it’s the simplest and least expensive way to start a business. While there aren’t many legal and tax formalities for sole traders, if you operate as a sole trader, you’re responsible (and liable) for all aspects of the business. This means that all debts and losses fall to you, and can’t be shared with anyone else.
A partnership is similar to a sole trader, except you’re in it with someone else or a few other people. This means that the responsibilities and liabilities are split between partners. Like sole traders, partnerships are inexpensive and relatively easy to set up. While a written partnership agreement isn’t legally required to form a partnership, they’re a good idea so that it’s clear how income and losses are distributed and where control of the business lies.
After a sole trader, this is the most common structure for SMEs, and for good reason. For many people, opting into a company structure from a sole trader happens when you start bringing in more money, and the change means saving on tax – with the current company tax rate set at 25% for SMEs. A company structure limits your personal liability and increases personal asset protection.
Trusts are where things get a little more complicated, but *trust* us, for the right business they can have big tax advantages! A trust is a legal responsibility imposed on a trustee (which can be an individual or a company) for the operation of the trust and to hold business assets for the benefit of others (beneficiaries). This structure comes with complications and needs to be handled by people who know what they’re doing (that’s us).
Self managed super funds require a trustee to call the shots. A trustee can can an individual, or a company. Given the lasting implications of how you choose to manage the fund, enlisting our help to guide you through the process is a no brainer. As with the other structure options, SMSF’s have their own pros and cons. To set one up, you’ll need to meet with a financial advisor (we know a good one ;)) to make sure this is the best option for you, and that there’s a management plan in place.
The *most* important takeaway to remember is that choosing a structure is on a case-by-case basis and involves a plethora of variables. They’re a complicated piece of the business puzzle and affect your tax in a big way. Chat to us before making any decisions.