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Structuring your Small Business for Success
When it comes to setting up your small business, there are a few key things you need to keep in mind in order to ensure its success. You need to choose the right structure for your business, register the correct business name, and apply for the relevant licenses and permits. In this blog post, we'll focus on choosing the right structure for your small business.
There are four main types of business structures in Australia: sole trader, partnership, company, and trust. Which one you choose will depend on a number of factors, including the size and nature of your business, how many people are involved, and your personal circumstances. Let's take a look at each option in turn.
Sole Trader: A sole trader is the most common type of business structure in Australia. This is because it's the simplest and most straightforward option. As a sole trader, you are the sole owner of your business and you're personally liable for its debts and obligations. This means that if your business fails, you could lose your home or other personal assets.
However, being a sole trader also has its advantages. For instance, you have complete control over your business and you get to keep all the profits (after tax). You can also set up a sole trader business relatively easily and at relatively low cost.
If you're thinking of setting up a sole trader business, we recommend that you seek professional advice first so that you understand all the implications involved.
Partnership: A partnership is very similar to a sole trader business structure except that there are two or more owners involved. Each partner is equally liable for the debts and obligations of the partnership.
Like a sole trader business, a partnership has some advantages and disadvantages that you need to consider before deciding if it's the right option for you. Some of the main advantages include that it's relatively easy and inexpensive to set up and run; partners can pool their resources, which can be helpful if you don't have enough capital to go it alone; and each partner can bring different skills and knowledge to the table.
On the downside, partners are jointly liable for any debts incurred by the partnership; there can be disagreements between partners about how to run the business; and profits (after tax) must be shared equally between partners regardless of their individual contributions.
Again, we recommend that you seek professional advice before entering into a partnership so that you understand all the implications involved.
Companies: A company is a separate legal entity from its owners (known as shareholders). This means that shareholders are not personally liable for any debts incurred by the company—their liability is limited to their investment in shares.
Companies also tend to have greater borrowing power than other types of businesses because they can use their shares as security for loans. And because companies often have greater profit potential than other types of businesses, they can attract investors more easily.
However, there are also some drawbacks associated with operating as a company—for instance, companies must pay corporate tax on their profits; they're subject to more regulation than other types of businesses; and they're generally more expensive and complex to set up than other types of businesses.
Trusts: A trust is an arrangement whereby assets are held by one party (the trustee) for the benefit of another party (the beneficiary). The beneficiary can be an individual or a group of people (such as family members). Trusts can be used for various purposes such as asset protection or tax minimization.
There are many different types of trusts available, each with its own advantages and disadvantages that need to be considered before deciding if it's appropriate for your situation. For instance, discretionary trusts give trustees discretion over how income is distributed between beneficiaries while unit trusts mandate equal distribution among beneficiaries regardless of their individual contributions.
Properly structuring your small business is crucial for its long-term success—it will affect everything from your taxes to your liability in case things go wrong . There's no one-size-fits-all solution when it comes to choosing the right structure for your small business; it depends on factors such as the size and nature of your business, how many people are involved ,and your personal circumstances . We recommend that you seek professional advice before making any decisions so that you fully understand all implications involved . Thanks for reading!