Establish Business & Legal Requirements

1. Yvette Bender Establish Business & Legal Requirements

2. Business Ownership Structures • Sole Proprietor • Partnership • Company • Trust

3. Sole Trader • A sole trader is an individual who runs the business without partners or a company structure. The sole trader has full control of the business including ownership of all profits and responsibility for all debts and

4. Sole Trader Disadvantages • You are your business – business operates only if you work • You are personally liable for all business debt • You continue to pay tax at personal income tax rates • Fewer options to raise finances may limit your business Advantages • Simple structure • You are your business and make all decisions • Inexpensive to establish and operate • Least reporting requirements • Your losses may be offset against any other income or future earning (over a set amount)

5. End Of Year SOLE TRADER Registers an ABN Can choose to register for GST and pay quarterly Individual declares Income - Expenses = Profit to ATO Tax Paid on Profit only

6. Partnership • A partnership involves two or more co-owners participating together in a business. A partner may be an individual or a company and each partner shares in the responsibility and profits of the business. • It isn’t a legal requirement but it is prudent to draw up a partnership agreement. In the absence of this, the law will assume that each partner has an equal share in the business. It is advisable to have a solicitor prepare the partnership agreement

7. Partnership Advantages • Inexpensive to establish and operate • Ability to spilt income on level of ownership • Responsibility of the business is shared • Ability to raise finance for the business is enhanced • Capital losses may be offset by other non-business capital gains derived by the individual owners Disadvantages • Each partner is fully liable for the full debts of the partnership • There is limited flexibility in distributing profits from property • Any profit made by the business is split into shares for each partner; therefore rendering a credit viable sum of money into a possibly non-credit viable sum NOTE: If the partnership does not have a Partnership Agreement a court will assume the split was an even share. In the case of a two person partnership - 50% each. A Partnership Agreement is a legal binding document. (it is advisable to have a solicitor to draw it up but does not have to be written by a solicitor or a lawyer so long as it has been signed by both parties and witnessed by a neutral person.

8. PARTNERSHIP Registers an ABN / GST paid quarterly Registers a Tax File Number Partnership does NOT Pay Tax End Of Year Partnership declares Income - Expenses = Profit to ATO with the % split to each partner Partner 1 may have income from other sources, therefore income from all sources must be added together and tax paid on the total = Gross Taxable Income Partners split all profits from the year’s turnover and pay personal tax on each share – regardless of the amount of their yearly drawings If Partner 2 has a share of 50% of a $40,000 profit then they have to pay tax on $20,000 ie. 50% of $40,000 Even if their drawings were only $15,000 Partner 1 -50 % Partner 2 - 50%

9. Proprietary Limited Company • A business may operate as a separate legal entity in the form of a company. This is a more complex form of business structure governed by Corporation Law, which covers how a company operates and the duties of the directors. • A business with a proprietary limited company structure is considered as a separate entity from the people running the business. A company structure requires at least one director and one shareholder/member to be appointed. The shareholder(s) provides finance to the company, while the director(s) has serious responsibilities to operate the business according to Corporation Law.

10. Advantages • The company is a separate legal entity, which may enter into agreements, can be sued, can sue others • Retained profits are taxed at the company income tax rate • Ease in attaining ownership in the company by acquiring shares • Ease of ownership change • Continuity of the company’s existence – not dependent on the owners Disadvantages • Set up, administrative and operating costs are high • Increased statutory requirements, for taxation and Corporation Law • Revenue and capital losses must be retained by the company – cannot offset owners’ incomes

11. End Of Year PTY LTD COMPANY Purchase a shelf company Set up directorship You become an employee of the company Company liable for employee entitlements ie: wages, PAYG, super, workers comp Company declares Income - Expenses = Profit to ATO pays Company Tax on Profit Only Individual declares income to ATO pays Income Tax

12. Business Names • Is only valid for the state it is registered in • Period of registration is 3 years • Certificate must be displayed • Registered name must appear on all stationery • Trade Marks are Australia wide and overrule Business Name Registrations

13. Other Restrictions • Trade Practices Act • Anticompetitive practices • Unconscionable conduct • Unfair practices • Product safety • Conditions and warranties • Equal Opportunity • Occupational Health and Safety