Business Structures

There are four common business structures

1. Sole Trader
2. Partnership
3. Company
4. Trading Trust

Sole Trader

• Carries on business in his own name or a registered business name.

• Is liable to taxation in his own right as an individual and declares income from the business in his own personal tax return and pays income tax at personal tax rates and will be liable to PAYG tax.

• Sole trader owns the assets and is responsible for the liabilities of the business.

• Liability is unlimited and extends to personal assets.

Partnership

• Partnership is formed when two or more people go into business with a view to make a profit.

• Carries on business in the partner’s personal names or a registered business name.

• The Partnership Act and the agreement between the partners regulate partnerships.

• Each partner is liable to taxation in his own right as an individual and declares income from the partnership in his own personal tax return and pays income tax at personal tax rates and will be liable to PAYG tax.

• The partners own the assets and are individually responsible for the liabilities of the business.

• Liability is unlimited and extends to each partners personal assets. It is automatically dissolved on the death of one of the partners.

Company

• Separate legal entity incorporated under legislation.

• Subject to taxation in its own right and payable at a flat rate.

• Liability of shareholders is limited to the unpaid share capital.

• Operate as a single shareholder and single director.

• Annual returns need to be lodged once per year.

Trusts

• Formed by a gift or settlement being made to the trustee on behalf beneficiaries.

• The trustee controls distribution of income or capital and beneficiaries declare and pay tax in their personal tax return.

• Trust can be wound up and assets distributed but only where there is consent by the beneficiaries.

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