This is the most straightforward structure for a business.
What's a sole trader?
Basically it means the business decisions are being made by one person.
Of course, it doesn't necessarily mean that the business has only one worker. The sole trader can employ others to do
any or all of the work in the business.
What are the advantages?
This type of structure isideal if the business is not complicated, especially if it does not require a great deal of
- There isn't much paperwork in establishing this type of structure.
- You may not have to register the business name (see above).
- There are less stringent reporting obligations compared with other structures.
- You may be able to deduct tax losses from personal income.
- You areentitled to profits and the ownership of assets.
- It's relatively straightforward to wind up.
What are the disadvantages?
- You are personally liable for all debts.
- Personal property may be vulnerable for debts and other business liabilities.
- Large sums of capital are less likely to be available to a sole trader, and you may have to rely more on overdrafts
and personal savings.- You may require enormous investments of time without the normal employee recreation leave and other benefits.
- There may be issues of continuity of business in the event of death or illness.
Talk to an accountant or lawyer about the legal ownership of personal assets or the use of trusts to limit liability.
For instance, the family home may not be exposed if it isin the name of your spouse - you must get legal advice
before you do this, because there are other consequences, especially if the spouse dies or you divorce.
Also, you may not be able to do this if your sole purpose is to avoid a creditor. Get advice
What is a company?
In many ways a company is similar to a sole trader or partnership, except that it exists as a separate legal entityfrom the owners (who are called shareholders). This means that in most circumstances, personal assets of the owners cannot be touched to pay for the debts of the company.
What law applies?
A Commonwealth law called the Corporations Act.
There is a "Small Business Guide" included as part of this Act to help small business operators understand their rights and obligations.
Companies are regulated by the Australian Securities and Investment Commission (ASIC). The ASIC is an independent government body that administers the Corporations Act. Its aims are to provide protection for consumers and businesses in their dealings with companies and to ensure that companies:
operate according to the law;
report their activities;
maintain properrecords; and
maintain an information database on company details.
Types of companies
Most companies fall into two categories, depending on the type of liability that can be imposed on the owners:
A company limited by shares, limits the liability of shareholders to the value of their shares. This structure is suitable for most trading businesses and can be a privatecompany or a public company
A company limited by guarantee, most often used by non-trading organisations, for example, sporting clubs.
Sometimes an activity or goal is bigger than the resources of an individual, but achievable by a group of people with a common purpose who pool their energy and resources to effect change.
A cooperative is different from other formsof private or public organisation in that it is owned by its members who directly run the organisation, make decisions democratically and use capital for mutual rather than individual benefit. A co-op, in other words, is a democratic organisation owned and controlled by the people it serves who voluntarily join together for a common and mutual benefit. A co-op is, in essence, its members....