As you take your business to the next level, you may have considered setting up a company – but there’s a lot to understand about the different business structures.
Here is a cheat sheet we’ve compiled so you can tell the difference and make an educated decision to determine if a company setup is right for you and your business.
First thing first, what are the core business structures?
Under this structure the individual is the legal entity, there is no separate director or office holder. There are also no shareholders who can buy in. Investment would be to the individual as opposed to purchase of shares. The individual owner has unlimited liability with regards to debts and liabilities of the business.
Under a Pty Ltd Company, the company itself is a separate legal entity from the director or the owners/shareholders. This structure requires a director and secretary. A company also has shareholders and a share structure. Investment can be by way of share issue and purchase. The liability for the debts incurred by the business for the owners is limited.
What’s the difference when it comes to fees, taxes and ownership?
OPERATING AS A SOLE TRADER
Sole Trader structures have fewer setup costs. If you are starting a sole trader business, the only registration expense (unless you are engaging the services of an accountant) will be to optionally register a trading name under your ABN.
Things to note:
- You need to keep your financial records, including tax returns, for 5 years
- The Australian Taxation Office (ATO) treats the money you earn under your Sole Trader business as individual income
- Your are personally liable for financial or tax debts in a Sole Trader business structure.
OPERATING AS A COMPANY
Companies are more complex business structures and have higher set-up costs. Standard fees include:
- Company registration fee
- Accountancy fee for registration
- ASIC annual fee
- Annual company documents
- Company tax returns
Things to note:
- You need to keep your financial records, including tax returns, for 7 years
- Money the Company earns belongs to the Company. Even if you own the Company (you are the shareholder), the money belongs to the company
- You can’t use funds for personal use like in a Sole Trader setup. As funds belong to the Company and not the individual, any funds taken from the Company need to be expensed as a wage or paid back
- The Company is generally liable for all business debts
Okay – so if the money earned belongs to my Company, how do I get paid?
In a company structure you will pay yourself a wage from the company. What you pay yourself will contribute to your Individual Tax Return. On this amount, you will still be entitled to claim the $18,200 tax free threshold if applicable. The money you leave in the company will be taxed at the flat tax rate of 26% and there is NO tax free threshold.
What is the company set up process with Empire?
Have a phone consult with us to determine if a company setup is right for you. You can book a time here.
You will receive a company registration form which will help us with the application to register your company. The exciting part first though, picking a company name! Use this link to find out if your proposed name is available. If not, come up with a list of variations you’d prefer!
Empire Industry Finance handles the entire company registration, including the ABN & TFN application, documents to set up your company bank account, all hardcopy paperwork, Work Cover insurance setup as well as added to our company portal where you will remain up to date with ASIC fees.
All digital paperwork will be saved in your new company Dropbox folder, where you will receive an invite to access. All company related paperwork/receipts will need to be saved here from now on.
Now that you have your company documents, it’s time to set up a business bank account under your company name (you will need to go into a bank to do this).
Have your earnings/income come into your company account and pay for all your expenses from your company account.
Subscribe to Empire’s bookkeeping services to assist in the financial management of your company. If you’d like to find our specific inclusions and pricing, please schedule a call.
We’ve created a FREE downloadable Tax & Bookkeeping Guide that is industry specific!
To download, simply complete the form below.