What You Need To Know When It Comes to Business Structures
Updated: May 24, 2021
You've been wanting to start a small business for some time now. You're finally about to do it, which is great! However, there's some groundwork to be done first. This includes deciding, ultimately, which business structure type will suit your needs the best. There are four standard structures, and you can choose one of the following:
What goes into these business structures?
The company is a legal entity that is separate from you. It has the same rights as anyone, so it can sue, be sued and incur debt. Owners (members or shareholders) can limit personal liability as needed. Accountants in the Gold Coast can help you figure out whether the company qualifies for tax advantages. Net losses of the company will be trapped for future use, while net income should be taxed at the company tax rate and reported in the income tax return of the company.
A business structure with two or more individuals and/or entities receive income jointly and operate things as partners. With this structure of business, control or management of the entire business is shared amidst partners. While absolutely not required, it's highly recommended for a formal partnership agreement to be laid out and signed by all parties. Both net losses and income that that business incurs will be distributed amidst the partners as agreed upon, and the respective partners will have to report that in their respective income tax returns. It should be noted that a business partnership does not qualify as a separate legal entity.
Amongst the four, this is the simplest business structure. Setting it up is inexpensive, as there are little formalities in terms of taxes and legalities required. Should this be the route you take, you will be responsible for every aspect of the business. There are no set limits on any amounts of liability, as the aspect of debts the business incurred will also fall under you. Any net losses or income of the business should be reported along with your income tax return on a personal scale.
Essentially, a trust is an obligation that is imposed on a person or entity (trustee) in order to hold property or assets (for example, assets of the business) in order for others to benefit (beneficiaries). This is one of the more complex business structures out there since the administrative costs are higher. The cost of setting up is also quite high.
If your business ends up operating as a trust, the operation falls under the responsibility of a trustee. It's possible to have tax advantages when the trust structure is used. Your business accountant will better explain this and help you through it. When there are losses incurred by the trust, it ends up trapped for future use by the trust. The business's net income, on the other hand, will be distributed in accordance with the Trust Deed to the beneficiaries.
Starting a business can be thrilling, but there's also groundwork that needs to be done. There are four business structures to choose from: company, partnership, sole trader and trust. It's key to weigh what they entail and take on which best suits your needs.
Looking for a business accountant on the Gold Coast? Contact New Wave Accounting today! We provide end-to-end accounting and bookkeeping services that help scale and grow businesses.