- Andrew Lind
What is the best legal structure for my small business?
Our Business Lawyers with lawyers in Brisbane & on the Gold Coast can help you answer that question.
The answer is going to depend on your circumstances and factors like - the type of business, the size of the business and your plans for the future.
Here is some information to get you started.
Sole Trader
Definition: As a sole trader you are the sole business owner and trade in your own name. (e.g. Fred Smith Plumber).
- Name – You can usually trade in your own name without having to register a business name
- Simple – your customers / clients know precisely who they are dealing with
- Staff – sole traders can have staff. You do not need to all the work
- Tax – you pay tax at your personal marginal tax rates
- GST – the GST rules still apply
- Risk – your personal assets are at risk from liabilities you may incur in the business
Partnership
Definition: A partnership is two or more persons carrying on a business together with a view to a profit.
- Name – You will usually have to register a business name
- Partnership Deed – You and your partner(s) need to be clear about your obligations and rights
- Tax – the partners pay tax at their respective tax rates
- Risk – partners are generally personally liable for the liabilities that arise in the business
- Rest – a partner can make it possible to take a break
Trust
Definition: A trust is a relationship where the trustee carries on a business for the benefit of certain benificaries.
- Trustee – A trust can only conduct business via a trustee. A trustee can be a natural person(s) or a company
- Type – there are different types of trusts – discretionary (family) trusts, unit trusts and hybrid trusts
- Tax – Income splitting – the trustee can split income to beneficiaries with tax paid at their respective tax rates
- Asset protection – trust assets and personally owned assets can often be kept separate. Careful consideration in drafting of the trust is needed here.
- Penal tax – penal tax is levied on retained earnings
Company
Definition: A company is a legal person (apart from its directors and shareholders) providing limited (“Ltd”) liability protection.
- Single director and shareholder is all that is needed
- Tax – a flat 30c in the dollar tax rate applies
- Asset protection – company liabilities generally remain in the company
- Retained earnings – can be accumulated (and only taxed at the 30c in the dollar flat tax rate)
- Dividend franking – dividends can be franked or unfranked
More >> Checklist for starting a small business in Australia | Our Business Law services | www.corneyandlind.com.au
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This would mean that you would transfer the business which may have Capital Gains Tax and possibly Stamp Duty implications. Better to get the structure right from the start.
Hi Lachie – as indicated by me email – this will require specific advice. Let me know if I can help with that.
Hi, i’m in the process of setting up a business. there will be 3 of us going into this equally. I need to know the advanage and disadvantages of a single trust with three trustees or 3 seperate trusts. thanks josh
Hi Josh
I recommend that the three of you keep a one hour teleconference with me during which the pros and cons can be considered. I will send you an email about costs.
regards
Andrew Lind
If I and three other lawyers were considering entering into a trading trust, could you outline the benefits and appropriateness for me, taking into consideration that we have already leased a building to undertake practice in and we wish to employ other lawyers together, as well as share any profits made.
Hi,
I’m keen to start up a engineering and design service which I plan to carry out along side my full time job. Sole trader, company? I’m really not sure. Can you make any suggestions?
A 30 – 60 minute consultation by phone or in person is needed to unpack this. I would be happy to do this. However your accountant is probably the best person to start with on this.
If I can help please contract our Client Services Manager and she can eplain how our costs work.
Sorry for the delay in response but I have been away. A 30 – 60 consulation by phone or in person is needed for this. Please contract my client services manager if you would like to book this in.
Hi,
I’d like to become a partner with an established company. I don’t know if it is beneficial to keep the company name and work as Group or to change the company name.
They have a lot of business and my work is separte to their current speciality so what is your opinion?
Great questions. This is going to require some specific tailored legal and accounting advice on issues such as:
- Quarantining of risk (present and future)
- GCT and stamp duty issues
- Existing assets and contracts and the cost of moving them or leaving them intact
- Future succession plans
Our business lawyers and commercial lawyers would be happy to help. I suggest that the starting point is a one hour teleconference which can be arranged through our Clients Services Manager.
regards
Andrew Lind
Hi Andrew,
I have an existing ABN in a partnership but our business is sold.
I have now been offered to work as a contractor. Do I apply for a new ABN as I will be operating as a sole trader?
Also, it is a verbal agreement. Is it advisable to have a written agreement/contract in place. The work I will be doing is bookkeeping.
The ABN question is really one for your accountant who can consider any tax (or tax loss) questions at the same time.
A written agreement is always preferable. Let us know if we can help you with that.
I’m a web developer and I am going to setup a new company for a new venture. I will be the only director and shareholder and the business will do mainly consulting.
What would be the best company structure to go with?… A family trust, which then owns the trading company?… Or is there a better way to set this up?
Great questions.
There is no one size fits all. I suggest that you buy an initial conference with an accountant as the main issue is usually tax during the life of your business and on the sale of the business.
regards
Andrew Lind
Hello
I own a wholesale trading business with one other partner. The current business structure is partnership. We want to change our business structure to that of a company (pty ltd). How do we go about doing this? I imagine the accounting transaction will be a complicated one given that we have 2 years of retained earnings.
Look forward to your reply
Essentially you would be rolling the asset into the new company. I suggest that you take some accounting advice about ways at this that may seek to reduce the tax and transfer (stamp) duty implications. If you have an external financier you will need to involve them in the loop.
regards
Andrew Lind
Hi Andrew,
I’m planning to set up a design practice with my friend which will involve construction part with another company and we will be share the benefits equally, would partnership better for us or company?
Thanks.
Hi Tracey
No simple answer on this one.
For example – you will need to take some specific advice form an accountant on the tax implications; a lawyer on risk management, asset protection, and liability issues on defective workmanship; and your insurer from an insurance perspective.
regards
Andrew Lind
Hello, can I be a sole trader yet have a business name that is not related to my first or last name? Note: I would register the business name. Thanks.
The short answer is yes subject to some limitations like not passing yourself off as someone else, not infringing the intellectual property of someone else and limitations on offensive and place names. The Office of Fair Trading should have some good tips on all this.
Regards
Andrew Lind
Hello
I am currently purchasing a retail business as a sole trader…will I be liable for any stamp duty for the purchase?
In Queensland usually yes at the full “conveyance / transfer” rate of duty.
regards
Andrew Lind
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