Below explains the differences between different types of companies, trusts, sole traders and partnerships.
Company
A company is a separate legal entity, which means it has the same rights as a natural person and can incur debt, sue and be sued. A company’s owners (the shareholders) can limit their personal liability and are generally not liable for company debts. All revenue is owned by the company.
A company is a complex business structure, with high set-up costs and administrative costs because of additional reporting requirements. A company must be registered with ASIC, and company officers must comply with legal obligations under the Corporations Act.
Sole Trader
A sole trader is the simplest form of business structure. It is inexpensive to set up because there are few legal and tax formalities. There are also fewer reporting obligations than with other types of business structure and you can use your personal tax file number (TFN) to lodge tax returns. There is no obligation to pay yourself superannuation.
Despite the categorisation, ‘sole trader’, you can employ other people to help you operate the business. If you choose to operate your business under a name other than your own, you must register the business name with ASIC.
If you operate your business as a sole trader, you trade on your own and control and manage the business. You are legally responsible for all aspects of the business and personally liable for debts the business incurs (there are no limits on this liability). You are also personally liable for all tax payable on the business’s income.
Partnership
A partnership is an association of people who carry on a business as partners or receive income jointly. A partnership is relatively inexpensive to set up and operate with limited reporting requirements. If you carry on a business under a name that is not the names of each partner, you must register the business name with ASIC. A formal partnership agreement is common, but not essential.
Each partner pays income tax on the share of the business’s net income they receive. A partnership tax return must be submitted to the Australian Taxation Office (ATO) every year.
In a partnership, control or management of the business is shared and you and your partners are personally liable for all debts and obligations of the business. There are potentially no limits on this liability, as a partnership is not a separate legal entity. Partnerships must register for GST if annual turnover is $75,000 or more.
Trust
A trust is an obligation imposed on a person – a trustee – to hold property or assets (e.g. business assets) for the benefit of others. These others are known as beneficiaries.
Setting up and operating a trust can be expensive because a formal deed is required and there are formal yearly administrative tasks for the trustee to undertake.
If you operate your business as a trust, the trustee is legally responsible for its operations and decides how profit should be distributed to the beneficiaries. A trustee of a trust can be a company, providing some asset protection. You do not need to register the trust with ASIC. However, if the trustee is a company it must be registered with ASIC and if the trust carries on business under a name other than its own name, the name must be registered as a business name with ASIC.
Bear in mind that it can be difficult to break up or make changes to a trust once it has been set up.
For more visit - http://asic.gov.au/for-business/your-business/your-business-structure/
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