M1: Learner Manual

3.2. Business structures

Different business structures come with different advantages and disadvantages and can determine:

·       the licences required

·       how much tax is paid

·       whether you're considered an employee, or the owner of the business

·       your potential personal liability

·       how much control you have over the business

·       ongoing costs and volume of paperwork for the business.

The Australian Taxation Office (ATO) gives the following outlines for some commonly used business structures for organisations in Australia:

https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/business-structures-key-tax-obligations

Some of the most common structures include:

Partnership

A partnership is a group or association of people who carry on a business and distribute income or losses between themselves. For example, if you and a friend or family member decide to set up a business together, you might operate it as a partnership. In a partnership the partners:

·       share income, losses and control of the business

·       may choose whether or not to have a written partnership agreement. This is not essential for a partnership to exist, but is a good idea as this can help prevent misunderstandings and disputes about what each partner brings to the partnership, and what they are entitled to receive from the income of the business

·       are not employees, but the partnership might also employ other workers

·       are responsible for their own superannuation arrangements. However, the partnership is required to pay superannuation for its employees.

Trust

Setting up a trust can be expensive as a formal deed is required outlining how the trust will operate and there are formal yearly administrative tasks for the trustee.

A trustee is legally responsible for the operation of the trust. The trustee can be an individual or a company. Profits from the trust go to beneficiaries.

Company

A company is a legal entity with higher set-up and administration costs. Companies also have additional (ATO) reporting requirements.

A company:

·       is run by its directors and owned by its shareholders

·       is owned by its shareholders and protects them from liabilities incurred by the company

·       provides some asset protection, to its directors but they can be legally liable for their actions and in some cases, the debts of the company

·       is regulated by the Australian Securities & Investments Commission (ASIC).

Indigenous community organisations are usually set up as a company, under an incorporation structure.