So you want to start your own business in Australia but not sure where to start. Well you have come to the right place.
Types of business structures
Common types of business structures for an Australian business are:
- Sole Trader
- Limited Liability Company
Running the business as a sole trader is a perfectly fine way to operate. Normally, sole trader is the best business structure for a business operated by a single person. This is especially true if you have a modest startup capital.
If your goal is to grow your business and hire staff or have shareholders, then a sole trader may not be the best option.
The benefits of running your business as a sole trader are:
- It is easy to set up, inexpensive and maintain.
- You are fully in control of the direction and management of your business.
- All profits and assets of your business are yours.
- It is easier to manage paperwork than other business structures.
- You don’t have to reveal your profits to the public, unlike companies.
- Greater privacy Tax-wise, it is easy to manage (profits are subject to the individual income tax rate of the owner).
- Retained earnings are not used to increase tax complexity.
- It is easy to dissolve the business.
- If you decide to sell your business, any gains after tax are retained.
If you have a mate who you want to run your business with then a partnership may be a better option.
Partnerships have many advantages
- It is easier to form partnerships than businesses and they are also less costly.
- Partner may continue to do business under the trading (business name).
- Partnerships bring together the expertise and resources of many people.
- Partnerships are easy to manage. The ‘partnership agreement” specifies how profits and losses will be divided between partners.
- Partnerships are not required to reveal their profits to the public like companies (i.e. Greater privacy It is easy to change the legal structure (i.e. It is easy to convert a partnership into an entity at a later stage.
Proprietary Limited Company (Pty Ltd)
A Proprietary Limited Company (Pty Ltd) will protect you from personal liability. You are only responsible for the money you have invested in the company. This is not true for partnerships and sole proprietorships. Limited liability companies are easier to manage and require fewer formalities than operating as a trust.
Advantages of a company include:
- In general, shareholders are only liable for the loss of the shares they own and not responsible for any company debts.
- Limited liability
- Legal arrangements are in company name and not directors or managers.
- Because company shares can be transferred, the business structure provides continuity in management and ownership in case of death or disability.
- Companies pay less tax than individuals.
Find out more about setting up a Proprietary Limited Company (Pty Ltd).
Trusts provide asset protection and limit liability related to the business.
Benefits of a trust include:
- Trusts are a way to separate ownership of assets from their owners. This can be beneficial for protecting income and assets of young people or families.
- For tax purposes, trusts can be very flexible. A discretionary trust allows for flexibility in the distributions of capital gains and income among beneficiaries.
- Trust debts are not usually liable to beneficiaries, unlike partnerships or sole traders.
- Trust beneficiaries pay income tax at their marginal rates on income received from trusts.
Business insurance is a type of insurance that helps protect businesses from financial loss. It can cover things like property damage, liability, and business interruption. Business insurance can be customized to fit the specific needs of a business. It is an important part of risk management and can help businesses stay afloat after an unexpected event.
Types of business insurance
There are many types of business insurance available to businesses of all sizes. Some common types of business insurance are listing below include property insurance, liability insurance, workers’ compensation insurance, and business interruption insurance.
Common types of business insurance include:
- Property Insurance
- Public Liability Insurance
- Workers Compensation Insurance
- Professional Indemnity Insurance
- Business Interruption Insurance
- Management Liability Insurance
- Cyber Liability Insurance
- Tax Audit Insurance
- Food Business Insurance
- Market Stall Insurance