Tricky items like business structure can leave you with a massive headache. That’s why at TAG we have both accountants and lawyers as part of our business toolbox to help you get everything sorted.
Many builders and tradies start off as sole traders, but know what other options are available and the pros and cons can really help you decide on the best structure for you business going forward. As a TAG member you also have access to expert accountants such as Carbon and Legal Legends such as RCR Law at a great discounted rate. This article will help you weigh up the pro’s and cons and help get you closer to that dream business you want.
What is a sole trader?
This is the most common business structure. It is also the simplest and easiest to set up. In essence, a sole trader is an individual running a business. With this structure, you control and manage your business.
Sole Trader Pros & Cons
A sole trader abn is easy to set up and great for if you’re going out alone. The ease of setup and minimal reporting makes it quick and easy to get your business up and running. These businesses need to be registered for GST and you are responsible for your own super annuation – meaning a little bit more time is needed in managing funds. Sole Traders do not offer asset protection, but also do not require any extra fees like asic fees.
What is a partnership?
A partnership is a business structure made up of 2 or more people who distribute income or losses between themselves.
Partnership Pros & Cons
Just as relatively easy and inexpensive to set up as sole traders and they have minimal reporting requirements, making them a good choice when starting out with someone else. With this structure the control and management is shared between 2 or more individuals. All losses of the business are split between the partners as based on the agreement and they are required to follow the same needs of a sole trader business. These also require a separate TFN to manage taxes. Partnerships do not offer asset protection, but also do not require any extra fees like asic fees.
What is a company?
Company formation involves creating a separate legal entity, and that does involve higher set-up costs, but it can also be responsible for debts and other obligations.
Tax, reporting, and legal obligations are more complex with a company structure than with a sole trader or partnership. Companies must be registered with ASIC and have at least one resident director. Companies are run by their directors and owned by their shareholders.
Company Pros & Cons
The ATO notes that, despite a company providing some asset protection, its directors can still be held legally accountable, including for the company’s debts.
Reach out to RCR for all your legal and contract help
Reach out to Carbon for help with your books and accounting
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