Are you a sole trader who has outgrown your business structure? We can help!
Most people starting their own business will start with a cheap, no fuss business structure to ‘dip their toe in the water’ to start their business.
As business grows (sales, staff etc.) there are many benefits of becoming a company. Although becoming a Director of a company has its perks, you need to ensure you are making the switch for the right reasons.
What is a sole trader?
- A cost-effective, simple structure to set up.
- Have full control over your assets and business decisions.
- Fewer financial and tax obligations than if you operate as a company.
- Legally responsible for all financial aspects of your business.
- Personal assets are at risk (house, car, shares) and can be seized to pay off any debts if the business runs into financial trouble.
What is a company and what is required to operate a company (Pty Ltd)?
- A company is a separate legal entity that requires a director/s and shareholder/s.
- As a company director, you can limit your personal liability for company debts.
- A tax effective business structure which is taxed at 27.5% on your business profits whether you make $1 or $1 million of net profit (as long as your company has a turnover of less than $25 Million).
- Initial set-up and ongoing administrative costs of operating a company.
- Companies are subject to an annual review by the Australian Securities Investment Commission (ASIC); sole traders aren’t.
- Companies must maintain financial records (Special Purpose Financial Reports) that comply with the Corporations Act 2001. Companies must lodge a Company tax return.
- Sole traders only lodge an individual tax return.
Why change to a company structure?
You might consider changing to a company structure to:
- Limit your personal liability.
- Lower your tax liability by accessing company tax rates, as opposed to individual tax rates depending on the level of profit in your business.
- Position your business for growth, or to attract investors.
- Access greater legal protection between yourself and third parties, such as employees or suppliers.
How to change to a company structure?
Changing from a sole trader to a company isn’t for everyone. You will need to seek professional advice so you are able to weigh up the pros and cons to make an informed decision as to whether a company structure is right for you and your business.
If you’ve decided that a company structure is the right move for your small business or you would like to discuss your business structure, feel free to contact our office for a complimentary, no obligation discussion.
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5 June 2019