Small Business Series – Part 4: Choosing the right structure for your business
Hello there! Thanks for following our Small Business Series. If you are new here, you can find our first post in the series here at Part 1.
This blog will look at the different types of trading structures, with an overview of advantages and disadvantages. As always, any information in our blog is general advice only as we don’t know your personal circumstances. Please feel free to reach out to us at LCB Accounting Solutions if you would like advice based on your unique needs.
The structure you choose for your small business will impact how you're taxed and your ongoing compliance requirements. In Australia, the most common business structures are:
Sole Trader: Simple and inexpensive to set up. You report your income in your personal tax return and are taxed at individual income tax rates. The higher your income, the more tax you will need to pay.
Partnership: Similar to a sole trader but involves two or more people. The profits are shared between partners and taxed at your personal tax rates.
Company: A separate legal entity that pays tax at the corporate rate of or 25% for small businesses. This structure provides limited liability protection but is more expensive to set up and complex to run. You need to submit annual returns to ASIC (Australian Securities and Investment Commission) as well as a Company Income Tax Return
Trust: A structure where the trustee holds the business’s assets and profits for the benefit of others (the beneficiaries). Trusts are complex but can offer asset protection and tax advantages.
Choosing the right structure for your business will depend on your business goals, growth plans and risk tolerance. LCB Accounting Solutions can help you understand the implications of each structure, including tax benefits, liability considerations, and growth potential, ensuring that you make the best decision to align with your business goals. Our expertise can also assist you with setting up the necessary registrations and managing ongoing compliance, so you can focus on running your business.
What about Katie from our case study? She consulted with her trusted advisor at LCB Accounting Solutions and decided to be in a sole trader structure for now, based on her personal circumstances.
We hope you are enjoying our blog posts. Please contact us if you have any questions or would like to discuss any topics we have covered so far.
See you next time when we will look at tax registrations. Don’t worry, it’s not as boring as it sounds!