Business Structure – Sole Trader, Partnership, Trust, Company …?

by Andrew Lind on 1 February, 09

Andrew Lind
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

{ 134 comments… read them below or add one }

jo woodbury April 23, 2009 at 8:33 am

Hi Andrew, could you please provide some advice onthe following situation?.

If three sole traders are working together from the one office (all are designers) yet want to promote themselves as one entity eg xyz studio, and what are the legal implications if things go wrong? Can individuals seek compensation for developing this identity and building value in it? I have registered the xyz name and so I guess there is risk involved if the other two sole traders are using that name on stationery, for promotion etc.

It all seemed simple, but I think it has the potential to be very sticky? If we don’t want to enter into any formal partnership should we just trade as our names or x & associates?
what do you think
thanks jo

Andrew Lind April 23, 2009 at 11:38 am

Hi Jo

Thanks for your question.

It is possible to have a “group name” and continue to trade as sole traders but the distinction needs to be very carefully maintained and communicated consistently on:
– signage
– business cards
– letterheads etc

By registering a group name, there is a partnership established as a matter of law at least in respect of the ownership of that name. The trick is to make sure there is clear agreement between the partners on matters such as:
– what this partnership can and cannot do
– what happens when a partner leaves

Can individuals seek compensation for developing this identity and building value in it? The short answer is yes.

Additionally, if one partner incorrectly (even inadvertently) held out to a client that it was the partnership who the client was dealing with, the partners would be jointly and separately liable to that client.

Yes it has the potential to become sticky and I recommend that the three of you at least have an initial conference with a lawyer to talk through the issues and the risks. At least then you will be making an informed decision about whether to continue with the group name or not and if you do what you might need a simple partnership agreement to cover.

regards
Andrew Lind
(Note: This is not legal advice but some preliminary information and observations only).

Irene April 24, 2009 at 12:33 am

hello Andrew, can you please give me some opinion for this situation?
——————————————————————
You are employed as an accountant in a small accounting firm. One of the major parts of your job is to advise business clients on how hey should structure their businesses in the most TAX EFFECTIVE way.
Neil has come to you to seek advice about purchasing a bakery shop. He has given you the following details:
1. He owns his house worth $500,000 with his wife
2. He has 2 children aged 25 and 15 and would like to include them in the business.
3. He is currently working as an IT consultant and earns $70,000/year and is keen to reduce his
taxable income. He will continue in this after the business commences.
4.He is worried about losing his house if the business fails

Advise Neil as to whether he should establish a partnership, trust or company to purchase the
bakery shop. What are the advantages and disadvantages of each in relation to a person in
Neil’s circumstances?

Andrew Lind April 24, 2009 at 8:44 am

Hi Irene

Issue one – asset protection

The rule of thumb in asset protection is this – if you control or substantially contribute to the cost of acquisition of an asset you probably own it.

The family home should be kept in the personal names of both or one of the partners to the marriage / relationship. Why? So that the asset remains Capital Gains Tax (CGT) free and concessional stamp duty applies on the purchase.

Gone are the days when you just transfer full ownership in the home to the ‘low risk’ spouse or partner of the ‘at risk’ individual without considered advice on a number of issues including:

– How encumbered is the asset by mortgages?
– What contribution has and will the ‘at risk’ person make to paying off the home?
– Is the ‘at risk’ person solvent (able to pay debts as and when they fall due) and not under a contingent liability (e.g. tax to be paid on returns that have not yet been lodged or possible litigation)

Conducting the business through a structure other than the personal names of the Neil and his wife (if set up and run properly) should allow most liabilities of the business to be quarantined in that new structure.

Issue two – tax planning

Partnership, if genuine rather than contrived, allows partnership profits to be split between the partners. If only one partner really works in the business, that partner should be paid a commercial salary and only profits after that salary are partnership profits.

A company allows profits, after a commercial salary is paid to the family members working in the business to be taxed at the 30% corporate tax rate. However that profit is then trapped in the company. Sure it can reinvested in the business but to get it out of the business dividends must be paid. They can be franked dividends but the difference between the corporate tax rate and the recipient’s tax rate is taxed in the hands of the recipient. There are timing advantages but the tax is still paid.

I consistently find that the best structure for a small family business is a Trustee company (xyz Pty Ltd) as trustee for the xyz Discretionary Trust. I have written about Discretionary Trusts in our Legal Resource Centre.

Not all Discretionary Trust Deeds are created equal

Family or Discretionary Trust Diagram

Increasing Giving via Discretionary Trusts

Issue three – feeding the structures you have birthed

New structures are like new children – often a blessing but they cost money to keep. Extra compliance, tax returns, reporting to ASIC, annual fees to ASIC and advice and succession planning is required.

Issue four – succession planning

Much more than a simple will is required for those who have a discretionary or family trust in making an effective succession plan / estate plan. This is because companies and trusts continue to have life after the death of the Neil and his wife.

Additionally if both children are to be involved in the business and may want to have a join ownership after Neil and his wife have retired, careful thought needs to be given to the structuring of the trust from the outset as trying to tinker with that later will probably have CGT and Stamp Duty implications.

Se also this article in our Legal resource Centre: Sucession Plan – Discretionary Trusts
Happy to help and provide specific advice if desired.

regards
Andrew Lind
(Note: This is not legal advice but some initial observations and information for your assistance.)

Gina May 3, 2009 at 10:20 pm

Hi Andrew

I have a client who is currently a sole trader in landscaping, he has been offered a weekly salary and 20% of the profits in a Pty Ltd company in exchange for his clients.

To get him set up correctly right from the start, would it be best if he (as an individual) is paid as an employee by the company, and sets up a discretionary trust to become the 20% shareholder to receive any profits, for both asset protection and distribution purposes?

Andrew Lind May 5, 2009 at 5:44 pm

Thank you for your questions.

Issue one – Minority Shareholding

Minority shareholders in small businesses, without a clear Shareholders Agreement are at real risk of being mistreated. A properly considered shareholders agreement will cover matters such as:

– Dividend Policy
– Minimum Dividends (franked or unfranked)
– Restrictions on further diluting the shareholding of existing shareholders
– Rights of sale

Issue two – Income splitting

Only non-personal exertion income can be distributed through a discretionary trust. Therefore I assume that the salary being offered is commercial.

I assume that there other adults or companies who your client wants to share the dividend income with.

Issue three – asset protection

The use of trusts for asset protection has become much more complex since the Richstar decision. There are still real benefits but careful examination of control of the trustee and the terms of the trust need to be considered.

regards
Andrew Lind

Cheryl May 12, 2009 at 9:49 am

Hi, I was wondering, at present my husband has his own business that is run as a Pty Ltd. He is the only one employed. He has been approached to do the same sort of work with a different company but they have said he only needs to be a sole trader. What are the ramifications of changing from Pty Ltd to Sole Trader and is this possible?

Andrew Lind May 12, 2009 at 5:42 pm

Now that you have a company structure in place I would not be winding it up unless you think you will have no use for it down the track.

Changing from a Pty Ltd to a sole trader would probably involve a transfer of goodwill and assets from the company to your husband. Capital Gains Tax and Stamp Duty issues need to be considered.

As a sole trader your husband will be personally liable for the debts and obligations of the business. A Pty Ltd structure provides some protection in this regard.

Regards
Andrew Lind
(Note: These observations are information only and not advice. Please contact us for advice.)

Julie Upton May 12, 2009 at 8:44 pm

Hi Andrew

I am contracting to several businesses as a sole trader and I am wondering of the CGT and stamp duty implications of transferring my business into a Family Trust Structure a to minimise tax and increase asset protection.

Thanks

Michael May 15, 2009 at 9:53 pm

Just wondering what are the complications of transferring all my personal assets into a company structure?
many thanks

Anthony May 19, 2009 at 4:11 pm

Hi Andrew,

I’m looking for some advice on how to best set up a structure for a new business I’m establishing.

I’m starting a business of which I will be a Director – say, company X. I will have a shareholding in this business (shareholder agreement is done).

My quesion is around the ownership structure for that shareholding in Company X.

Should I set up another company (company Y), of which I will be the sole director, to own that shareholding in company X?

Also, I have a family trust – can that be the sole shareholder in company Y? Or does it make more sense to use the trust as the shareholder in company X directly?

Your thoughts would be appreciated.

Thanks,
Anthony

Andrew Lind May 21, 2009 at 3:38 pm

In Queensland transferring a business (even to your family trust) attracts duty a full transfer duty rates based on the full unencumbered market value of the business. Your accountant will need to prepare a valuation. The Qld Office of State Revenue web site has calculators.

Capital Gains tax implications are going to depend on how long you have been operating for (in terms of discounts you can claim) and what the cost base of the business is. The ATO web site usually provides some good background information.

Regards
Andrew Lind
(Note: These are initial observations and not legal advice.)

Andrew Lind May 21, 2009 at 3:44 pm

Your question is short but the answer is long and is going to depend on a number of factors such as:

– the type of assets
– your reasons for wanting to do so
– how long you intend to hold the assets for before disposing of them

For example, a principal place of residence should almost always be held in the name of an individual residing in it so as to be able to be exempt from Capital Gains Tax on disposal.

Andrew Lind May 21, 2009 at 3:53 pm

Good questions.

If you intend to distribute all profit every year from the company and not retain earnings and reinvest in the company it is best that the trust trades i.e. change the trustee of the trust to company X and company X trades as trustee of the trust.

If you intend to retain earnings and only distribute some dividends the trust (via its trustee) could be shareholder. This would allow dividend income to be split through the trust and as long as that income was fully distributed each year would be taxed in the hands of the ultimate beneficiaries at their tax rates.

Having company Y as the shareholder seems appealing at first to get the corporate tax rate but then the money is trapped in that company. How do you get it out? Dividends? Well who is then the shareholder of company Y?

Regards

Andrew Lind
(Note: These are initial observations only and not tax or legal advice. I would recommend a 20 minute phone consultation in your case and I should be able to give you some clear answers in that time.)

Priscilla June 3, 2009 at 2:12 pm

Hi Andrew,

I recently landed a job in financial services; however the firm will only employ me if I set up a company and contract to them through the company I establish. (I think they do this to save on oncosts.) As part of the setup process, I
am required to give a registered business address (not a PO box). I own my home and that is the only address I can provide…will this impact on the usual CGT exemption when I eventually sell one day? I will be working in the CBD and not from home, but I suspect from time to time there might be some so-called home-office expenses like stationery, internet, phone, etc. that I would like to deduct. I found it hard to get straight answer from the ATO. Also, I do my own personal tax returns so I don’t have an accountant to turn to. I welcome your thoughts.

Kind Regards,

Priscilla.

Andrew Lind June 4, 2009 at 3:41 pm

Simply nominating your home as an address for business correspondence does not change the nature of that asset from being your principal place of residence.

Assuming home office use remains a minor or incidental use of your home, rather than the predominant use, even working from home and claiming some costs as tax deductions will not alter this. However, be careful here …. For example, if you start charging your business rent, or claiming depreciation on the home then the nature of your property at least partially changes and CGT would start to apply. It would be wise for you to take specific advice from an accountant before claiming any of these deductions.

regards
Andrew Lind
(Note: These are initial observations – not advice.)

Kate June 5, 2009 at 8:30 pm

Hi,

I was wondering if you could tell me if there is a minimum age of a partner in a partnership. Can a partnership be set up with parents and children.

Thanks
Kate

Beth June 7, 2009 at 8:38 pm

Hi Andrew

My husband and I live in SA. He is working from home as a sole trader, doing web design. Because of health problems, I have been on a disability pension for several years now. I recently decided to start a business as an online share trader, as it is something I enjoy and can do from home, working within my limitations (I hope that at some point in the future it will enable me to get off the disability pension). I have a few questions for you:

1.) What business structure should I/we use? We share an office, and tax claims for use of our home, etc. would be the same. I would help him with tax, etc. as numbers aren’t his thing at all.

2.) Would a particular business structure have more or less effect on my disability pension? It will be awhile before I make much money, and my husband hasn’t made very much money yet. It’s quite a new business (he’s only been in Australia for a year) and the current financial climate doesn’t help.

3.) Would we need or should we have separate ABNs and/or business names?

4.) Would it be better for me to register as a business in this financial year, or wait for the next one? I have already made several trades (mostly losing ones, so far), and I am concerned that if I wait for the next financial year the money that I’ve put into the trades will be regarded by Centrelink as money in the bank, and will therefore affect my pension payments. I don’t know if there are advantages to waiting that would outweigh that issue or not.

Any help you can give me on these issues would be very much appreciated.

Kind regards,
Beth

Andrew Lind June 17, 2009 at 2:16 pm

You asked: What business structure should I/we use?

A great question, but one that needs careful advice taking into account issues such as:
– cost of setup and running it
– simplicity
– risk management and asset protection
– tax planning
– succession planning

Generally, these issues can be adequately explored in a one hour meeting or teleconference. The cost of a lawyer worth their salt in this Business Structuring area is sadly not cheap – however good advice usually pays for itself over and over again. If you would like a fixed fee quote from me for this please let me know.

You asked: Would a particular business structure have more or less effect on my disability pension?

Probably not, as generally income earned from all sources controlled by you needs to be declared. See this Centerlink section.

You asked: Would we need or should we have separate ABNs and/or business names?

One structure and one ABN would be far easier to administer as long as you understand and manage the risks. I can help you with some advice on this.

You asked: Would it be better for me to register as a business in this financial year, or wait for the next one?

As already commented, I think this will make little difference from the perspective of Centrelink. Again, this is an issue to be explored in an initial conference.

Andrew Lind June 17, 2009 at 2:40 pm

Good question. Usually 18 and under 18 in some cases. You will need to take specific advice on this one. Issues about the nature of the business, how this effects third parties dealing with the business and tax consequences for example need to be carefully considered.

Sally July 10, 2009 at 1:27 pm

Hi Andrew,

Is there a business structure called xxxx Pty ?(note: no LTD)

Thank you!

Vanessa July 13, 2009 at 10:17 am

Hi Andrew

My partner and I are both sole traders operating in different industries. Recently, I have been doing less of my own work and helping him out for various reasons. We are thinking of entering a partnership to save on his tax expenses, and because I want to help him market the business. I could only do that if i was related to the business in some form. I am thinking as an employee, or partner. He does not earn sufficient from the business to form a company and pay the 30% tax rate yet. Hopefully together we can build his business. What is the best structure going forward? and how do we go about setting up a partnership? who do we need to inform? what are the formalities? I read we need a partnership deed, but I am don’t know if we need to submit this to anyone? He already has a trading name and we both have ABN’s.

Micaela July 14, 2009 at 9:21 pm

Hi Andrew,

My husband and I started a partnership 3 years ago but have been going through a series of trial and errors with the business and what we want as our main focus, ie. what will sell best and make us the best turnover. We have finally settled on something that seems to be working, and hope that with a bit more effort we can get it off the ground and thriving. We both work equally within the business from home, however my husband is also working full time while we are establishing ourselves.

We were initially told that a partnership would be the best way to go, however a new accountant mentioned that because of the smaller earnings at present and the fact that my husband will still be working fulltime in other employment for at least the next 2 financial years, that perhaps it would be better to change the business structure from a partnership into a sole trader in my name. Therefore saving the higher tax bracket that my husband is incurring on his business earnings after his normal employment.

I was wondering what your opinion on doing a changeover like this was, if it’s worth it, and also what steps are involved in being able to do a changeover? Will we be out of pocket for anything, or is it simply a case of filling out a few forms?

Any help would be appreciated. Thank you!

Miriam Hussein July 15, 2009 at 4:06 pm

Hi Andrew,
I am looking at working for myself in a small psychology practice. My husband is going to provide some fitness training and work on reception in this business also. I have been advised by an accountant that a Trust is the best structure of my business. I have conducted some research into what a trust is, and from everything I have read, it is a complex structure. This is my first business and I just need to know if this advice is good advice.

Andrew Lind July 15, 2009 at 5:18 pm

I am not aware of any such structure in Australia.

Andrew Lind July 15, 2009 at 5:48 pm

Great questions. You are going to need some specific advice on these questions.

Here are some initial observations:

– Once you have one business structure try and stay with it. Each time you change it you may trigger a Capital Gains Tax and Stamp Duty liability.

– While it is best practice to have a Partnership Deed you do not have to have one. Most small business and even some large partnerships don’t. A minute of a meeting is sufficient.

– If a partnership is formed it will need a new ABN unless a partner becomes part of an existing business. There are few other notification requirements.

I could cover all this in a 30 minute conference by phone or face to face. Please let me know if you would like me to send you a quote.

Andrew Lind July 15, 2009 at 6:16 pm

Thanks for the question. Sadly it’s not as simple as filling out a few forms.
A simplified process would include:
1. Transfer Agreement – short form (1-2 pages)

2. Valuation from your accountant of value at the date of the transfer (for CGT & stamp duty purposes)

3. Lodgement of the Transfer Agreement (and valuation) for an assessment of Stamp Duty

4. New ABN (etc) for the new business

If you like I can email you a cost estimate for steps 1 and 3. Just let me know.

A downside is that you would have to repeat the process if you moved the ownership of the business again.

Andrew Lind July 15, 2009 at 6:27 pm

Discretionary Trusts are a good structure for small business. Like any new structure it is like any new “person” in your household. They cost some money to “feed them” but this can be managed.

The trick is to:

– get a good Trust Deed from the outset; and
– have a good lawyer explain how it works for you in language you can understand.

I explain Trusts to people all the time.

Please let me know if you would like me to send you a quote to:

– explain how Trusts work
– prepare a Trust Deed that works for you (and is not going to need expensive advice and repairs later)
– explain how your Trust will work

STuart Wright July 16, 2009 at 8:59 pm

Andrew – Understand that your reply is information only but was wondering if you could give me a steer. My wife currently operates her business as a Sole trader but has recently gone into an unofficial partnership with a friend who operates as a company. They want to make this “alliance” more formal so that they can correctly account for expenses and claim deductions etc. The friend has suggested that she doesn’t want to have the expense of another company so prefers a partnership but as a sole trader I don’t feel that offers my wife (and our family) enough asset protection – I THINK our house (joint names) etc would be at risk. Can you confirm this and suggest the most appropriate structure for 1) Asset protection and 2) ease of dividing profits and tax benefits of the new structure

Many thanks

Stu W

Andrew Lind July 24, 2009 at 1:26 pm

You are right to be asking these questions. A partnership (even if “unofficial”) means that the partners are jointly and severally liable for the liabilities of the partnership. If your wife is a partner her personal assets (including her interest in a jointly owned property) are at risk.

Has your wife considered taking shares in the company? Shareholders have limited liability and potential for those shares to be owners by another structure (e.g. a family trust). A Shareholders Agreement in this case would desirable.

I suggest that you need to take some advice on this.

Vince July 27, 2009 at 1:25 am

Hi Andrew,

I operate a small business as a sole trader and have registered a company. How do I transfer my business into the company? Are there CGT implications or is there an exemption as I am simply transferring the business to a company solely owned by me?

Thanks in advance.

Catherine July 27, 2009 at 4:23 pm

Hi Andrew,

I would like to start a small business as a sole trader but as the business grows several years down the track, I would like to limit my liability as I own two houses which may be at risk.
Can you please tell me if it is possible to change a business from sole trader to pty ltd? Is it an expensive exercise?

Many thanks.

Andrew Lind August 3, 2009 at 5:41 pm

Generally a change of business ownership from a sole trader to a pty ltd company is a deemed transfer of business at market value for capital gains tax and stamp duty purposes. My tip is – get the business in the right structure from the outset.

Andrew Lind August 3, 2009 at 5:45 pm

Transfer can be way of a short form agreement. Depending on the type of assets transfers may need to registered. The consent of your bank may be required.

Yes there are CGT and stamp duty implications. I strongly recommend that you take advice.

Mark August 7, 2009 at 9:58 pm

Hi Andrew,

What a great site and thank you for offering great feedback.

I am a contracting engineer and earn between 250-350K per annum. I have been employed to single companies ( typically one company per year via employment agencies as a payg). I would like to set up a better/more tax effective structure and was wondering whether the following is a good option.
Also
My wife works parttime, but is mainly looking after our child, and earns about $5-20K per annum.
We own our house – approx $950k . 50/50 tenants in commn.
We own 2 x rentals – value $650k each, debt $500k each, rent $350 p/week – 95% me/ 5% wife for tax reasons.

Should I set up a family trust to supply my engineering/management services, myself as a trustee, with my wife/myself and child as beneficiaries. Thereby reducing my tax liabilities.

Should we change the structure of the rentals for asset protection or tax effectiveness???

Frankie August 10, 2009 at 10:33 pm

Hi Andrew,

Does a partnership have to distribute ALL income to its partners at the end of a financial year?
It seems to be clearly the case, as partnership doesn’t pay income tax, but the partners do at their own. However, I don’t seem to be able to find this is mentioned anywhere in ATO’s or business.gov’s publications.

What would you say?

Thanks & regards,
Frankie.

Scott August 16, 2009 at 10:57 am

Hi Andrew,

Is it possible to change our business from a trust to being a sole trader. I have searched the internet for answers but have had no luck.

Cheers

Andrew Lind August 21, 2009 at 1:41 pm

This will involve a transfer of your business from the trustee of the trust to the individual sole trader. A short form Agreement should be put in place to evidence. Before you do so you should take specific advice on stamp duty and capital gains tax implications.

Please let our Small Business Law team know if we can assist.

Andrew Lind August 21, 2009 at 2:27 pm

These are great questions but ones that need to be answered in a conference when we are providing legal advice that you can rely on. I will email you an initial conference quote.

Catarina September 2, 2009 at 11:22 am

Hi Andrew,

I’m starting up a new business and wonder if I set it up initially as a Sole Trader, can I ‘switch’ into a ‘pty ltd’ in the future if required?

Cheers
Catarina

Lachie September 9, 2009 at 12:47 pm

Dear Andrew,
I am in the process of starting a new sports coaching and sports holiday camps business and was wondering which will be the best way to structure the business (sole trader, company, trust etc). I currently have a full time job and probably will have for the first couple of years of trading.

What are the implications of each type and how would you suggest I structure it?

Thank you in advance

Annie September 22, 2009 at 9:26 pm

Hi Andrew

My husband has recently set up a company with me being one of the directors but a non shareholder – with this in mind will there be any problems with paying a directors’ dividend to me from the company.

Thanks

Kevin September 30, 2009 at 8:02 am

Hi Andrew. I am a doctor who works parttime treating patients at a health clinic. I am a sole trader, employed as a contractor who is paid a percentage of the billings on the patients that I see. I have been asked by my employer to setup as a company for the purposes of applying for workers compensation insurance for myself which is not allowable as a sole trader. Is there any advantage for me to trade as a company under these circumstances. What are the risks in terms of asset protection needs in my situation as doctors all have professional indemnity insurance.

adam October 2, 2009 at 12:37 pm

Dear Andrew,
we are a group of 3 partners of a newly formed pty ltd involved in an ecommerce business and are clear we need a shareholders agreement. We are also aware of the typical points that need to be covered in such an agreement, but are unclear what the best practices are on such issues. What generally works best, what doesn’t. Can you provide any enlightenment or maybe direct us to somewhere where the pros and cons of certain solutions are discussed?
Many thanks.
Adam

Vanessa October 9, 2009 at 10:04 am

Hi Andrew, if a company is set up in partnership and there are 4 partners, one of which is the Director and each partner is operating through a trust so the trusts form the parternship for the business. Which document outlines the responsibilities of the individuals within the partnership? Would that be the Trust Deed in the absence of a partnership agreement?

Jessica October 9, 2009 at 5:54 pm

Hi Andrew,

I’m partner of a tourism business from NSW and we’re planning on expanding to Eagle Farm in 6 months time..I”m not sure on some of the obligations/reporting requirements I’d have to do for the company, and what financial matters I’d have to report as a business?

Andrew Lind October 13, 2009 at 5:19 pm

Hi Jessica – a Queensland accountant is the best person to take advice from on these matters.

Andrew Lind October 13, 2009 at 5:27 pm

Hi Vanessa

This one is going to require some specific advice. Please let me know if I can help.

Here are some initial thoughts:
– The key governing documents for a company (which I assume is the trading entity) are the Constitution and possibly a Shareholders Agreement.
– The Trust Deeds sound like they only relate to the affairs of each shareholder in the company.
– There may not be a partnership.

Andrew Lind October 13, 2009 at 5:35 pm

Hi Adam – I am not aware of any publication on this. In my experience it is best to keep an initial conference with a lawyer to go though this with you. Please let me know if I can help with this.

Andrew Lind October 14, 2009 at 1:46 pm

Sorry for the delay in getting back to you. I have been off the air for a couple of weeks.

Sole traders can make workers compensation arrangements.

Professionals trading though companies are still generally responsible personally for their professional advice and actions. Asset protection from general trading activities is possible. An initial conference would be required to discuss this. Let me know if I can help.

Andrew Lind October 14, 2009 at 1:50 pm

A director’s fee could be paid. Only shareholders can receive dividends.

Andrew Lind October 14, 2009 at 1:53 pm

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.

Andrew Lind October 14, 2009 at 1:55 pm

Hi Lachie – as indicated by me email – this will require specific advice. Let me know if I can help with that.

Josh March 15, 2010 at 10:24 am

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

Andrew Lind March 15, 2010 at 3:43 pm

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

angus April 3, 2010 at 1:57 pm

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.

Bart May 3, 2010 at 10:13 pm

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?

Andrew Lind May 7, 2010 at 5:44 pm

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.

Andrew Lind May 7, 2010 at 5:50 pm

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.

Shahid July 14, 2010 at 12:31 pm

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?

Andrew Lind July 19, 2010 at 9:51 am

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

Raj August 26, 2010 at 10:45 am

Hi Andrew,

I have been doing technical (telecom/wireless) services & consultation since 2009. I am the sole trader and I use my own name as the business name (and without having a designation). Now I am planning to expand my services, but before that I want to use a proper business name (which I have already decided) and give myself a designation.

What would be the best designation? Does the designation have any legal implications? I don’t like to use ‘Proprietor’; I don’t think ‘CxO’ will suit the size of my business; that leaves ‘Director’, ‘Owner’, ‘Principal’ etc. Can you make any suggestions?

Regards,
Raj (from Sydney)

Angelique February 3, 2011 at 7:27 pm

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.

Andrew Lind March 10, 2011 at 5:18 pm

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.

ADAM March 16, 2011 at 12:05 pm

Hi there

I dont know if anyone can help me

I formed a company with a friend(partner) and its was agreed 50% each
I do 85-90% of the work and 6 months later finding out he doesn’t have many expertise that will bring in clients or money
I want out. Im not sure how to approach this as his father is a lawyer. I want to work full-time somewhere else so I can make a living.

Can anyone help ?

Kristen August 8, 2011 at 1:03 pm

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?

Andrew Lind August 9, 2011 at 12:07 pm

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

Matthew August 9, 2011 at 5:24 pm

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

Andrew Lind August 10, 2011 at 2:48 pm

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

Tracy August 15, 2011 at 12:15 pm

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.

Andrew Lind August 15, 2011 at 4:42 pm

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

Ricarda Atherton August 22, 2011 at 8:38 am

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.

Andrew Lind August 22, 2011 at 9:28 am

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

Kerri January 25, 2012 at 9:37 pm

Hello

I am currently purchasing a retail business as a sole trader…will I be liable for any stamp duty for the purchase?

Andrew Lind January 27, 2012 at 4:57 pm

In Queensland usually yes at the full “conveyance / transfer” rate of duty.

regards
Andrew Lind

Sithembiso May 4, 2012 at 6:32 pm

Hello

Someone with an Offer to partner him. I am afraid of the Following
1. He owes lot of people
2. He has Debts
3. He is not Trustworthy

I Like to do business with him and I am thinking that of making a Contract that may Compensate the above Mentions Point.

This Person Operates as a Sole trader now and He is looking to partner.

Questions:
1. Is The Contract between Partners being legally recognized?
2. Can His Personal Debt Affects the Partnership going Forward?

BR
Sithembiso

Andrew Lind May 8, 2012 at 10:22 am

Hi

Thanks for your questions.

A wise person once said that they ask themselves a basic question before entering into a contractual relationship with them, “do I trust them?” If the answer is no, they don’t enter a contract with them because even a very lengthy Contract does not deal with this bedrock concern.

A contract between partners is usually a “Partnership Agreement” and is legally recognised. Normally this would be prepared by your lawyer and your accountant would often have input as well. Such an agreement would deal with matters such as – equity shares; contribution requirements (capital and personal exertion); and partnership change mechanisms including exit arrangements.

Personal debts of one partner can “infect” the partnership. If they are debts of the existing business, you could be seen to be assuming a joint and servable liability to them. If they are debts outside the partnership and one partner becomes bankrupt this means the partnership cannot continue and there are likely to be significant adverse financial consequences for you. It will be very import for you to obtain considered legal advice on this aspect in particular before entering into the partnership.

regards
Andrew Lind

Sara June 24, 2012 at 1:44 pm

which option is the best, building a house by a partnership or by a company? why? explain please.

caz June 28, 2012 at 5:20 am

Hi can i start up a business with a partner if i am on a debt management scheme

Andrew Lind June 28, 2012 at 11:56 am

Hi Caz

This is a question for an expert insolvency practitioner (usually specialist accountants).

regards
Andrew Lind

swati July 14, 2012 at 1:30 pm

If we change our partnership firm to sole proprietorship concern what are the requirements, also will we have to take a new tin no.?

Karl July 15, 2012 at 8:49 pm

Hi there,

We used to run a family partnership business and I am about to trade by myself as a Sole Trader.

Can I still use the Assets from the partnership business and introduce them for use in my business as a Sole Trader given the fact that the closing adjusting values from the last depreciation schedule are what to put in as Asset Values.

Thanks

Andrew Lind July 16, 2012 at 12:49 pm

I cannot comment on TIN matters are they are not part of the Australian jurisdiction.

Moving from a partnership to a sole trader?

I assume that one of the partners is exiting and the other is continuing? If so, there is a transfer of the interest of the exiting partner in the business to the continuing partner. In Australia this would have transfer (stamp) duty and capital gains tax consequences. Bottom line is don’t do this without specific advice from your lawyer or accountant.

regards
Andrew Lind

Andrew Lind July 16, 2012 at 12:56 pm

I recommend that you take specific advice from your accountant on this before doing so as there may be a transfer of business for transfer (stamp) duty and capital gains tax purposes.

Issues about creditor responsibility and employee entitlements will also need to be considered.

regards
Andrew Lind

W July 23, 2012 at 11:48 pm

This query concerns a self employed tradesman separated from his spouse for over 12 months. While together, their accountant set up a number (3) of trust based arrangements to cover:
a. their individual businesses (the spouse is no longer in business but the tradesman continues to be self employed).
b. 2 properties held in joint names (1 of these has been sold in the last financial year and they are currently arranging to have the other transferred to the tradesman as sole owner).
c. their superannuation (there were funds put into this arrangement but the investment has liquidated and is now worthless. No other funds have been deposited into this fund). The tradesman does not have a separate super account.

The tradesman has 3 registered trading names (linked to the trustee company for trust (a) but does 90% of his work under 1 of these names only.

My questions are:
1. Would closing these trust structures make sense given the circumstances described?
2a. Could trust (a) described above and its associated trustee company be altered/amended/changed so that the tradesman could continue to work as a self employed person but under a company only structure with him as sole director?
2b. Could the remaining property held via trust (b) be transferred to the company?
2c. The tradesman also currently holds another investment property in his own name with no affiliation with any of the abovementioned trusts. Would it be best to keep it as it is or put it under the company banner as well?
3. Are you able to provide a rough estimate of your costs to act on the tradesman’s behalf to expedite the situation described?

Maxwell July 26, 2012 at 4:34 pm

To what extent are the other partners liable for the bad decisions made by one fellow partner.If the business fails to meet its short term obligations because of one partner’s actions, are the other partners at risk of losing personal property?

Andrew Lind July 26, 2012 at 4:48 pm

Hi

The “general rule” is that partners are jointly and severally liable for the partnership liabilities and if the partnership is one between individuals then personally owned property is at risk. Query: Are the liabilities really partnership liabilities? Does the partnership need to be dissolved or the partner directed not to take certain further decisions? I suggest that you need to take swift specific advice on all this.

regards
Andrew Lind

Jane August 17, 2012 at 12:06 pm

Hi Andrew,

This site is such a brilliant resource – thanks for the time you put in to your articles and responding to people’s questions.

I have a quick query, if you have a minute. My business partner walked out of our partnership without notice yesterday. Thankfully we had a watertight partnership agreement in place so I know I can follow it up through the appropriate legal channels if needed. I intend to continue running the business if possible.

My question is as follows: We were planning on incorporating the business in about 6 months time in any case. As my partner is now exiting, rather than going through the process of reducing the structure to a sole trader first then later up to a company, would it be better to simply register a company immediately and transfer the business asset straight from the partnership to the company? (The partnership dissolution process hasn’t yet started.)

I am meeting with my accountant as soon as possible next week to decide on the next move, but wondered if you had any information around this issue in the meantime. This is the first partnership I’ve been involved with (and probably the last!) so any information you could provide would be a real help. I understand that any info you can provide is not advice.

Thanks Andrew

Regards
Jane

ilario August 20, 2012 at 5:52 pm

Hi,

My wife and myself operate two independent business as sole traders. I tend to get very busy from time to time and I would like to contract my wife for data entry/book keeping associated with my business. Is contracting to a spouse allowed?

anna October 3, 2012 at 12:48 pm

Hi, Andrew:

We are considering setting up a family trust. If a trustee is a company. Is this company going to pay 30% income tax first, then distribute the net profit to beneficiaries. Is this trustee company different from regular company? How to set up a trustee company?

Thanks a lot for your help.

regards,

anna

Andrew Lind October 3, 2012 at 4:15 pm

Hi Anna
There is usually very little difference between a company that will be the trustee of a trust or trade into own right. Usually the only substantive difference is in the shareholding. Take advice on this as later changes to trustee company shareholding can trigger unwanted revenue (e.g. stamp duty) consequences.
If the company acts as trustee of the trust it is the trust or usually the actual beneficiaries that earn the income and are taxed accordingly at their respective tax rates. Retained earning in trust are taxed above the top marginal tax rate.
I strongly recommend that you obtain accounting and tax advice before establishing a structure and then have an experince lawyer help set it up.
regards
Andrew Lind

Andrew Lind October 3, 2012 at 4:16 pm

Yes at usual commercial rates.

regards
Andrew Lind

Andrew Lind October 3, 2012 at 4:26 pm

Hi Jane
Sorry for the delay in responding.
Taking swift advice from your accountant in this circumstance is the best first step then appropriate legal advice as there are issues to be finished off in the partnership which ideally should be appropriately documented (if not already covered in your Partnership Deed) such as:
– Dissolution date
– Final accounts
– Process for responding to any contingent liabilities that arise later but relate to a time period during the partnership
Regards
Andrew Lind

Andrew Lind October 17, 2012 at 12:31 pm

Great questions.

Sorry for the delay in coming back to you. I have been a bit swamped.

Moving a business from a trust to a company will normally have transfer (stamp) duty and capital gains tax implications based on the market value of the assets being moved. This normally makes such a move undesirable.

Winding up of an unused trust is fairly simple, essentially normally by trustee resolution but you should take prior advice on that before doing so as remaining assets will need to be dealt with as part of the winding up.

I suggest an initial 20 minute consultation for a low fixed fee. Let me know if you want a price for that.

regards
Andrew Lind

Andrew Lind October 17, 2012 at 12:32 pm

For this you will need specific tax advice from your accountant taking into account your particular tax circumstances.

Luke November 6, 2012 at 2:07 am

Hi Andrew, Great website!!

My friend and I are starting a very small consulting company. He’s in Sydney and I’m in Brisbane. We will do slightly different, yet related consulting. We want to trade under the same trading name. However, I want to know if we should be a partnership or should I be a sole trader with my own ABN and just trade under his business name and have a joint venture? I may want to do other work in the future separately.

Andrew Lind November 6, 2012 at 10:00 am

If you want to do some things together and some things on your own I suggest a JV of your two businesses for certain projects would be the way to do it. The tricky bit will be who has the contract with the customer – this will need to be one of your businesses with the other business engaged as a consultant to the contracting business. The contracting business will bear the risk with the customer and so should obtain indemnities from the consultant business. The other approach is a JV company for the purpose of JV projects only.

Jude March 12, 2013 at 10:55 pm

Hi Andrew,

I have been trading as a sole trader for the last 7 years. Now I want to open a trust and operate the same business instead of being a sole trader.

Could you please advise if it is posible to keep the same ABN and the sole trader name for the new trust, in other words basically convert/transfer or register the sole trader as a new new trust. Is this posible?

Regards,
Jude

Andrew Lind March 13, 2013 at 2:32 pm

My understanding is that this is not possible and a new ABN will be required.

I recommend that you take advice about Capital Gains Tax and Stamp (Transfer) duty.

regards
Andrew Lind

Geoff Hourigan June 13, 2013 at 3:14 pm

Hi Andrew i am a sole trader who recently joined another 2 sole traders. we are bricklayers. they had been operating for some years as sole traders but under a verbal agreement to spit the profit 2 ways, after joining them this became a verbal 3 way split. we worked it so we would take turns invoicing the builder then the other 2 would invoice him for a third of it. i was recently injured on site and they are now saying we were partners ? and not soletraders and if i went to court the court would view it this way ? surely you cant have it both ways ?

Maddi July 4, 2013 at 10:45 pm

Hi Andrew,

My husband has a company set up and is the only director, and annual earning is approximately 300k gross. Just have a question on whether a sole trader would be a better fit for him seeing as he does not have direct employees.

Andrew Lind July 5, 2013 at 9:03 am

Hi Maddi

The principal question here is a tax question for your accountant.

My rule of thumb is the medial one, “do no harm”. That is, its best to leave existing structures in place unless there are very complelling reasons to change structures.

There may still be some asset protection benefits in operating in the corpoarte structure.

Our Brisbane Commmercial Lawyers offer a fixed fee short (30 minute) and long (1 hour) consultation. Let me know if you would like our office to email you a price for these.

regards
Andrew

Andrew July 5, 2013 at 1:19 pm

Hi Andrew,

If I operated multiple small businesses, can I set up a trust, with each business as a trustee, in order to simplify my income stream?

Andrew Lind July 5, 2013 at 1:49 pm

Hi Andrew

I think you are asking – can multiple small businesses be owned by a single trust? The answer to this is yes. Asset protection issues should considered. Transfering assets to the trust would also have revenue consquences (CGT and stampo duty) which would need to be considered.

If our Brisbane Commercial Lawyers can help please let us know.

Johnny September 20, 2013 at 3:44 pm

Hi Andrew,

My parents are both self employed farmers. Is that considered as Business partnership?

Andrew Lind September 23, 2013 at 10:11 am

Hi Johnny

I would have thought so – as long as they are carrying the business on in common and not via a seperate legal entity.

The ATO defines a partnership as:

Two or more people in business together where the group is not a separate legal entity, including:

family partnerships – where two or more members are related to each other

limited partnerships – where the liability of at least one of the partners is limited.

Souyrce: http://portalhelp.ato.gov.au/TAP/TA/Resources/Definitions/#P

Angelina October 17, 2013 at 9:53 am

Hi,
If my husband is a sole trader and we set up a discretionary family trust, is his sole trader business permitted to be the trust property? Or does his business need to be a company in order to be the trust property. Thank you,
Angelina.

kylie October 27, 2013 at 7:45 pm

Hi

My husband and I are in a farming partnership with a partnership ABN. I would like to take it back to him being a sole trader. We have his old ABN active but not registered for GST. Is this easy, what is involved? thanks
Kylie

Andrew Lind October 29, 2013 at 9:42 am

Hi Kylie

Take care.

There are capital gains tax and stamp duty issues to consider as essentially you would be moving an ownership interest in the farming business.

Generally the most cost effective way of getting this advice is from your usual tax accountant. Many accountants are not comfortable giving stamp duty advice. Our Brisbane commercial lawyers could give that advice.

Once you have taken that tax advice our Brisbane commercial law team would be happy to do a short form agreement to evidence the change.

Regards
Andrew Lind

Gabriel Lariatus November 25, 2013 at 4:06 am

Hi Andrew

Me and a few friends want to start our own business in hosting events, music production and clothing and fashion, however we cannot decide whether we should register it as a partnership or a company whether its private or public.

i understand there is a downfall to both, however we are more worried about the fact that most of the times partner ships fall apart due to personal problems with the friends which then will turn into a business matter and everything will go down hill from there.

could i get your opinion on whether you think we should go partner ship or company?

Regards
Gabriel Lariatus

Andrew Lind November 25, 2013 at 4:30 pm

Hi Gabriel

Great question.

There are advantages and disadvantages of both:

Company – some advantages: limited liability; ease of contracting (with safeguards and controls); corporate tax rate (but shareholders can have different tax objectives) | some disadvantages: no easy forced exit if the relationship between the shareholders breaks down

Partnership – same advantages: often simpler but a Partnership Agreement still recommended | some disadvantages: each partner liable for partnership liabilities; tax paid in hands of the partners (but partners may be able to be discretionary trusts)

I do recommend an initial conference for some advice with one of our Brisbane Commercial lawyers or your accountant.

regards

Shreyansh December 23, 2013 at 3:58 am

Hi Andrew,

we are planning an import business in Australia. Import of organic fertilisers from India for production. We have passed the quarantine procedure from DAFF and issued an import permit as well. For import business do we need a COMPANY or a TRUST? What would be more beneficial keeping in mind taxation and Risk factors?

dominic December 26, 2013 at 11:18 am

Hello Andrew

I am looking to start and importing business in Sydney nothing huge just small amounts of stock until I fully learn the business

but I was wondering as an importer what are the differences with being a sole trader and starting a pty ltd business

any help will be greatly appreciated.

Andrew Lind January 15, 2014 at 2:50 pm

Hi Dominic

If your budget extends to forming a Pty Ltd company it would be worth “beginning with the end in mind”. Moving assets (including business goodwill) to another structure later usually has adverse revenue consequences. You can form a Pty Ltd company online from sites like “Cleardocs.”

Take some accounting advice before doing so and especially about whether the shareholder should be a “family trust”.

regards
Andrew Lind

Andrew Lind January 17, 2014 at 2:00 pm

Hello Shreyansh

Sorry for the delay in responding – I have been on leave.

These are really tax questions and so an account is the best person to ask.

For a risk perspective corporate structure(s) are best, but a trust(s) could be used as the shareholder(s) of the trading corporate. Whether a trust is used as the shareholder is again usually a tax driven question for your accountant. In terms of the control of a trust there are risk factors to assess and usually you ensure that a “high risk individual” does not “control” a trust.

regards

Andrew Lind

Marc February 12, 2014 at 11:08 am

Hey I’m looking to run my own tattoo studio. I’m not sure what to register it as though sole trader company trust etc little help please?

Carmen February 13, 2014 at 2:25 pm

Good afternoon,
I have an educational business in NSW and I teach by myself but I want to cover other areas and I will have contractors with ABN to train for me. Am I still a sole trader? So, I have to pay them and get an invoice. Is that all?
Thank you

Andrew Lind February 13, 2014 at 3:23 pm

Hi Carmen

Assuming you are currently a sole trader, the engagement of Contractors (or employees) to deliver some of your services does not change that.

If it is your business who is delivering the educational services to the students you will have liability exposure for actions of the Contractors and so should consider for example whether your public liability insurance is adequate.

regards
Andrew Lind

Andrew Lind February 13, 2014 at 3:31 pm

Hi Marc

There are a number of factors to consider:

– tax (from year to year and on sale of the business) – speak to your accountant on this
– liability protection – a company is best but far from a total shield. Personal liability for the director(s) will still follow in many circumstances
– availability of adequate insurances – if most risk can be managed by appropriate insurance the “liability protection” factor becomes less important
– simplicity – sole trader is the most simple

Val March 12, 2014 at 6:51 am

Hi Andrew

I’m stuck in deciding between company vs partnership structure (with trusts) and wanted to get your views. Here’s a bit of context in terms of what I’m trying to achieve:
– starting a boutique advisory business with one other person
– creating 1-3 trademarks
– interested in operating in vic and overseas
– want to create a profit scheme with employees
– limited liability to myself and business partner.

Any steer would be most grateful.

Val

Andrew Lind March 12, 2014 at 4:48 pm

Hi Val

Limited liability would at least require corporate trustees of the trusts that are partners in the business.

Profit sharing with employees (if it is to be coupled with equity ownership) is more easily achieved with shares in a Pty Ltd operating company.

A single corporate operating entity may be easier for overseas (and local) clients to understand who they are dealing with.

One option to think about:

Corporate operating entity

Shareholders = trusts

Partnership of Trusts couple own the IP (like an asset holding entity) and license it to the operating entity.

Our Brisbane Commercial Lawyers could help with the Trusts, Trademark applications, Trusts Partnership Agreement (short form) and IP Licence.

Jessica March 19, 2014 at 9:28 am

Hi Andrew

The business has changed from a Partnership to Company/Discretionary Trust. Is the Partnership agreement still valid.

Thank you.
Jessica

Andrew Lind March 25, 2014 at 3:49 pm

Normally not but there may well be obligations that continue.

This will require specific legal advice in your circumstances. It may be that the intention of the parties was that the effect of some of the “partnership” obligations continued as an agreement of the shareholders of the company.

Let me know if our Brisbane Commercial Lawyers can help.

Kristine April 14, 2014 at 11:05 pm

Hi Andrew,
My husband and I wanted to set up a family trust. We were going to buy an investment property in the trust and both try to use the expenses as tax deductions 50/50.
Is the trust set up as a partnership between us using both of us as ‘directors’ or is having one of us as a sole director good enough. Particularly later, I’m concerned that paying dividends from the trust would be controlled and only eligible to go to whoever has the appointee title.
Can you help me understand what I should do?
Thanks for your time.
Kristine

Mary May 15, 2014 at 9:23 pm

Hi Andrew,

I have recently formed a partnership with hubby as a sub contractor for courier business. I have other two brothers who also bought their own transports and currently operating as a sole traders. We all work as a sub contractors in one company.

Would it be best for us to join together as a partnership, company or family trust?

Thank you,

Mary

Sara C May 23, 2014 at 9:18 am

Hi Andrew,

I’m wanting to start my own property mangement business. I’m in the planning process at the moment of registering a name etc Should I be setting this up as Trust or Company? Thank you Sara

Andrew Lind May 23, 2014 at 3:22 pm

Hi Sara

Great question.

I am currently finding more clients choosing a stand alone Pty Ltd trading company (not the trustee of a trust) with the shareholder(s) being a discretionary trust(s).

I strongly recommend however that you obtain accounting and tax advice from your accountant before launching as changing structure later is ALWAYS more expensive.

If there is more than one shareholder I also strongly recommend a Shareholders Agreement. Our commercial lawyers have published a check list on the types of matters usually covered by a Shareholders Agreement. Follow this link for the Shareholder’s Agreement check list: http://www.corneyandlind.com.au/services/brisbane-commercial-business-lawyers/shareholder-agreements/

regards
Andrew Lind

Andrew Lind May 23, 2014 at 3:26 pm

Hi Mary

Great question.

I am currently finding more clients choosing a stand alone Pty Ltd trading company (not the trustee of a trust) with the shareholders being a discretionary trust for each brother (and their respective families).

I strongly recommend however that you obtain specific accounting and tax advice from your accountant before changing as CGT and stamp duty need to be carefully considered.

As there would be more than one shareholder I also strongly recommend a Shareholders Agreement. Our commercial lawyers have published a checklist on the types of matters usually covered by a Shareholders Agreement. The Shareholders Agreement Check List can be found here: http://www.corneyandlind.com.au/services/brisbane-commercial-business-lawyers/shareholder-agreements/

Regards
Andrew Lind

Michelle March 9, 2016 at 9:44 am

Hi Andrew,

This is a question for my business project. Can you please give me some advice on it?
”Dan and Nicole are married with two teenage children. Dan has been thinking of starting his own business providing winery bus tours. His plan is to start off small, with perhaps a single 13-seater van, but the long term goal would be to offer coach tours to wineries all over Australia. Nicole would work in the business and they both hope that one day it would be large enough for their children to also be involved in the business.” What is the two particular forms of ownership structure that Dan and Nicole could consider and what is the advantages of those business structure?

Andrew Lind March 9, 2016 at 2:42 pm

Hi Dan & Nicole

Some Options:

1. Sole trader in one of your names with a registered business name

Pros – simple, cheap

Cons – no liability protection (personal assets in the sole trader’s name exposed to the business liabilities), tax payable at the personal marginal tax rate of the sole trader

2. Partnership in both your names with a registered business name

Pros – fairly simple, cheap

Cons – no liability protection (personal assets in the individual partner’s names name exposed to the business liabilities), tax payable at the personal marginal tax rate of the partners

3. Pty Ltd company with shares held personally

Pros – well understood, entry and annual cost quite modest, some liability protection, retained earning taxed at corporate tax rate

Cons – a little more cost to set up and maintain (but modest)

4. Pty Ltd with shares held by a Discretionary Trust

Pros – some liability protection, retained earning taxed at corporate tax rate, dividend income can be split (especially once children are 18), increased giving effictiveness to Charties

Cons – more complex, more cost to establish (but manageable), an extra set of books and accounts (and tax return) for the trust

Regards
Andrew Lind

Poojaben Patel May 4, 2017 at 1:51 pm

Hello Andrew,

I would like to start my Export import small business in Australia. I am planning to import fresh cut flowers from India and would like to sell it to Australia and NZ. Can you please guide me if Should I operate as Sole trader or Partnership with my Husband or any other options? I have good suppliers and buyers to start his business. My husband has ABN on his name.

Can you please advise some on tax and legal issues?

Regards
Pooja Patel

Andrew Lind May 4, 2017 at 2:35 pm

Hi Pooja,

Thank you for your enquiry. If you would like to set up a small business we can provide you with legal advice on the various ways you can set up your company and what model would best suit you depending on your circumstance. We do note that Australia has stringent Biosecurity Import Conditions regarding import of flowers to protect its fauna flora, this may need further enquiry and investigation. If your query is more tax in nature, you might be better served getting tax advice from your accountant. If you would like to set up an appointment regarding your business set up, please call (07) 3252 0011 and speak to one of our Business Development Team to discuss further.

Natalie May 18, 2019 at 5:29 pm

Thanks for the info, Andrew

I am looking to operate my small business as a Sole Trader. Are there any benefits to it as oppose to be operating as Company.

Andrew May 20, 2019 at 3:58 pm

Some things to note:

Yes – simple, immediate, lower cost (but risk to personal assets from business activity); and

No – if don’t trade in own name still need a registered business name, ASIC fees initially and ongoing, all taxable income taxed at personal marginal tax rate, rolling into a company later may not be cheap and there are normally Revenue (Tax – CGT and stamp duty) consequences.

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