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Business Structures - Coggle Diagram
Business Structures
Sole trader
Advantages
- simple, easy and cheap to establish. - Owner has total control over decision making
- Not highly regulated
- Only requires ABN, Tax file number and GST registration if income is greater than $75000
- Tax responsibility held by owner
- Reporting requirements are minimal and dismantling the business requires a less complicated process
Disadvantages
- Tax is charged at marginal rates( a scale up to 45%). - Unlimited liability of the owner, assets at risk
- Sole owners generally have limited time, skill and investment
- Business ends when sole trader ceases working or retires
- Lack of ability to split income
- Usually do not have access to large sums of capital, more overdrafts
Partnerships
Advantages
- Tax calculated on an individual basis like sole traders. - Decision making and workload can be shared among owners
- Access to more resources
- Ease of establishment and not highly regulated
- One difference is income is more easily split between partners in a partnership
- Each partner pays tax on their share of net partnership income
- Allows flexibility for varying profits/losses between partners on an annual basis
- Relatively simple and easy to run
- Less costly to establish than a company or trust
Disadvantages
- Joint and several liability of owners
- Mutual agency
- Limited life
- Tax charged at marginal rates can be high
- Individual members of the partnership may be personally liable in crime, tort or contract
- No asset protection
- Change in membership of partners usually alters the partnership
Company
Advantages
- Limited liability - Company tax rates apply (27.5% or 30% depending on size turnover <$50m)
- Relatively easy to set up and no need to audit if considered a private company
- Easier for public companies to raise capital
- Operations continue when ownership is transferred
- Shareholders get credit for tax paid
- Asset ownership can be transferred
Trust
Advantages
- Can maximise tax. - Little government regulation. - Unit trusts replicate a partnership type situation but without the disadvantages
- Benefits of tax free capital gains and tax incentives may be passed through to unit holders provided that appropriate structuring is undertaken
- Let you put conditions on how and when your assets are distributed after you die
- Reduce estate and gift taxes
Disadvantages
- Complex laws, trusts must be administered by an accountant
- more expensive and time consuming to establish
- May be harder to attract finance with limited liability of shareholders
- separation of ownership and control
- High degree of regulation
- Commercial costs in maintaining a corporate entity can be considerable
- Incorporation of an enterprise means that the principals become employees of that company