A sole trader is a single individual who solely owns, operates and is responsible for all aspects of the business. They have fewer reporting requirements than other business structures and it is simple and relatively inexpensive to establish and maintain which makes it a popular option for small business owners.
A sole trader is personally responsible for all debts and obligations of the business and has unlimited liability, which means that all of the sole trader’s assets (including personal assets) are at risk, such as being seized or subject to court orders to satisfy debts.
A partnership structure involves individuals who enter into business together with a view of sharing in the profits. There are three different forms of partnership in South Australia.
A company is considered a legal person, separate from the individuals who own and operate it. As a company is considered a legal person and has the same rights as a natural person, a company can enter into contracts, acquire rights or liabilities, own real property and sue or be sued in its own name.
A company has limited liability structure. For example, the liability of the company’s owners (shareholders) is limited to the amount they agreed to pay the company. This is considered as one of the primary advantages of a company structure over other business structures.
A company is a more complex structure. It must be registered with the Australian Securities and Investment Commission. A company has greater regulation (including reporting obligations) and administrative costs in setting up and maintaining than sole traders and partnerships. A company’s directors and officers are also subject to legal obligations under the Corporations Act 2001 (Cth).
A trust involves one person (the trustee) owning and holding property, such as business assets, for the benefit of other persons (the beneficiaries). The trustee is legally responsible for the operation of the business. The flexibility of the trust in terms of distribution of income to beneficiaries for certain tax savings and other benefits make a trust a popular business structure for some small business owners. However, a trust can be costly to set up and maintain and require a formal trust deed to be drawn up setting out how the trust is to operate.
If you have any queries in relation to these business entities or how Johnston Withers can help, please contact Andrew Mitchard.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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