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BDR Business Accountants Mandurah explains that choosing the right business structure is one of the most crucial decisions when starting a business in Australia. Your choice will impact taxation, legal liability, and the level of control you have over your business. In this video, we break down the four main business structures—Sole Trader, Partnership, Company, and Discretionary Trust—each offering unique advantages and challenges. Understanding these structures will help you make the best decision for your business goals.
A sole trader is the simplest and most common business structure in Australia. This structure is ideal for individuals who want full control over their business. BDR Business Accountants Mandurah highlights that as a sole trader, you are responsible for all business decisions, profits, and losses. One major benefit is the ease of setup and minimal costs compared to other structures. You can use your personal Tax File Number (TFN) for tax purposes and report your income on your individual tax return.
However, there are risks associated with being a sole trader. The biggest disadvantage is unlimited liability—you are personally responsible for all debts and legal actions against the business. This means your personal assets, such as your home and savings, could be at risk if the business faces financial trouble. Additionally, sole traders may find it harder to raise capital or expand their business compared to companies.
A partnership is a business structure that involves two or more people running a business together. Partnerships allow for shared responsibilities and decision-making, which can help reduce workload and financial strain. BDR Business Accountants Mandurah explains that partnerships are common in professional services, such as law firms, accounting firms, and medical practices.
One of the key advantages of a partnership is the ability to pool resources, skills, and capital. However, partners share the profits, debts, and liabilities of the business. A major downside is that each partner is personally liable for the business’s debts. If one partner makes a financial or legal mistake, the other partners can also be held responsible. It is essential to have a partnership agreement in place to clarify responsibilities, profit-sharing, and dispute resolution.
A company is a separate legal entity from its owners, known as shareholders. This means that the business itself is responsible for debts and liabilities, rather than the individuals running it. BDR Business Accountants Mandurah highlights that companies offer limited liability protection, which shields personal assets from business risks.
Setting up a company involves higher costs and regulatory requirements than a sole trader or partnership. Companies must comply with the Australian Securities and Investments Commission (ASIC) regulations and submit annual financial reports. A company pays corporate tax, which may be lower than personal income tax rates, making it a tax-efficient option for businesses looking to grow. Despite the complexity, a company structure is ideal for businesses planning long-term expansion.
A discretionary trust, also known as a family trust, is commonly used for asset protection and tax planning. A trust is managed by a trustee, who has the authority to distribute income to beneficiaries. BDR Business Accountants Mandurah explains that a discretionary trust allows income distribution based on the trustee’s discretion, which provides flexibility for tax minimization.
Trusts are particularly beneficial for family businesses, as they help protect assets from creditors and legal claims. However, setting up a trust can be complex and costly. Trustees must follow strict legal requirements, and ongoing management is necessary to ensure compliance with Australian tax laws.
Choosing the right business structure depends on your goals, risk tolerance, and financial needs. A sole trader structure is ideal for small businesses with low risk, while a partnership works well for professionals sharing resources. A company offers liability protection and tax advantages for larger businesses, while a discretionary trust provides asset protection and income distribution benefits.
Consulting a professional accountant can help you make an informed decision that aligns with your business objectives. BDR Business Accountants Mandurah provides expert advice to guide you through the process of setting up and managing your business structure.
Please get in touch with BDR Business Accountants in Mandurah to chat with our team on helping you with your business success.
Call us on 08 9535 1566 or visit https://bdrbusiness.com.au
BDR Business Accountants
4 Sutton St, Mandurah WA 6210
(08) 9535 1566
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