Basics in Business Structure
One of the most important fundamentals of business is its records.
It’s important to make sure your business has met the essential record keeping requirements, and your records are an accurate reflection of the activity in that business. In our blog we look at basics in business structure for sole trading, partnerships and companies, paying superannuation of contractors and the Superannuation clearing house for small business.
DISCUSSION – BUSINESS STRUCTURE
Being a Sole Trader is the simplest form of business and a majority of small businesses start out this way. The business must apply for an ABN (Australian Business Number) and can trade under the owners’ name.
There is no division between business assets or personal assets, which includes any share of assets jointly owned with another person (such as a
house). The liability is unlimited which means personal assets can be used to pay business debts.
Sole Traders are taxed as individuals and pay income tax at personal tax rates. This means business income is declared on personal tax return along with any other assessable income (such as salary or wages, interest, dividends).
Partnership involves two or more people (and usually no more than 20). In most cases the business needs have a ‘registered a business’ name and its own Tax File Number & Australian Business Number.
A partnership is a relationship, not a separate legal entity. Each partner jointly owns all the business assets and liabilities. It’s vital that each partner knows their rights, responsibilities and obligations and it’s a good idea to seek the help of a qualified professional to prepare a written partnership agreement.
The agreement should state each partner’s role and level of authority, their expected financial contribution and a clear procedure for dispute resolution and dissolving the partnership. This is important because personal liability is unlimited for each and every partner in the business.
All partners are jointly responsible for any debts another partner incurs, with or without partnership knowledge. Where there is no written agreement partners are considered to have equal liability/ownership in the business.
A company is a separate legal entity capable of holding assets in its own name, conduct a business in its own right and it can sue and be sued. Shareholders own the company while directors run the company. In many cases company directors are also shareholders, along with
The tax requirements for a company are quite different to the other business structures. It has its own tax income liability which is totally separate to individual income tax. A company pays income tax at a flat rate of 30% on taxable income.
A company’s assets belong to the company and the company is liable for debts incurred which makes this type of business structure appealing to high risk business ventures. Generally, the owner’s assets cannot be accessed to pay for any company debts or liabilities.
Free Clearing House for Superannuation Contributions
The government is offering a free super clearing house service to small businesses with less than 20 employees. The clearing house allows an employer to pay their employees superannuation contributions to a single location. The clearing house then distributes the superannuation contributions to the relevant funds. It is easy to use and reduces the amount of paperwork involved in making multiple payments to different superannuation funds. This service is optional and is designed to reduce red tape and compliance costs for small businesses when meeting their super guarantee obligations.
For more information click here.
Paying Super To Contractors
If you are an employer, you may have to pay super for contractors – even if the contractor quotes an Australian business number (ABN). Employers need to pay super contributions for contractors they pay under a contract that is wholly or principally for the contractor’s labour, even if the contractor quotes their ABN. This is because they are considered employees under superannuation guarantee law.
To help determine if your contractors are eligible for super, see Employee/contractor decision tool.
Love Your Business!