What are the most common business structures?
Most often, businesses will be run under one of the following structures:
Sole trader: This lets you run your own business without any other owners. As a sole trader, your business and tax affairs are likely to be less complicated and you can still do things like hire employees and enter into other contracts. However, you will also be solely responsible for any of the business’ debts.
Partnership: If you go into partnership with another owner or owners, you can choose to make your relationship informal (in which case you will automatically be equal owners) or formal (which lets you split ownership any way you want). Each of the business’ liabilities fall on all partners so if one absconds or dies, the others will be responsible for that partner’s share of the partnership debts. A formal partnership needs to meet a number of legal requirements, including the regulations set out in the Partnership Act 1892 (NSW). Your solicitor will make sure your partnership agreement covers what it needs to.
Limited Liability Company: When you form a company to own and operate the business, you can become a director, employee and shareholder. Shareholders have only limited liability and you can include as many as you like. As a director you will need to comply with the duties and responsibilities set out in the Corporations Act 2001 (Cth). You will also have responsibilities when it comes to tax, record-keeping and reporting by the company.
Trust: If you form a trust, the business will be owned and operated by a trustee (usually a company) for the benefit of the beneficiaries of the trust who do not have personal liability for the business’ debts.
Your solicitor can explain how these and other structures work.
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