(upbeat music)
-: There are a wide range of structures
available to operate businesses.
Each structure is built upon different legal concepts,
and therefore have different regulations
and tax implications.
When establishing a business,
one of the first decisions to make
is the organisational or business structure
to operate under.
The decision is generally based
on a range of commercial and tax factors,
and the selected business structure,
or combination of structures,
should be tailored to the circumstances
and the market sector of the business,
facilitating the achievement
of intended commercial outcomes.
A sole trader is an individual who is in business
and operating by themselves.
The main benefits of being a sole trader
includes simplicity of activity
and limited regulations.
However, this structure can lead to difficulties
if the individual does not carefully keep
their personal financial records
separate from those of the business.
Sole traders are also liable
for the debts of the business they operate,
so this exposes the individual to extra risk.
A partnership exists when two or more persons
come together to operate a business.
A formal partnership agreement
is recommended to be in place between the partners.
State or territory legislation
in the form of partnership acts
also govern partnerships.
Each partner will usually contribute some level of assets,
either cash or other resources,
to the business.
They will also expect to receive a share of the profits,
often an equal split, unless negotiated otherwise.
While partnerships are reasonably simple
with minimal compliance,
a key burden is that each partner
is jointly and severely liable for debts and legal outcomes.
In addition, net income of the partnership
is not taxed at the partnership level,
but is distributed to the partners
and taxed at an individual level.
A company is a legal structure
that makes it easy for a wide range of persons
to hold an ownership share of the business.
In most situations, those owners have limited liability,
which means they will not be liable
for the debts of the company.
Companies have a board of directors
who are appointed to oversee the governance
and operations of the organisation.
They are also governed by commonwealth legislation
in the form of the Corporations Act.
A company needs to be formally registered,
with the registration process specifying
the company name, the rules that will govern the company,
and its share structure.
The additional compliance requirements
are based on the company being a separate legal entity,
which can hold assets, generate income,
and take part in legal actions.
As a separate legal entity,
the company itself is taxed on it's taxable income.
Trusts are structures or arrangements
that have three main elements,
the beneficiaries, who hold an interest in the trust,
the trust property, which refers to the assets of the trust,
and the trustee,
who has the role of looking after the trust property
for the beneficiaries.
Trusts are governed by a trust deed
through equitable principles established by the courts
and by state and territory legislation
in the form of trustee acts.
The trust deed clarifies the responsibilities
and powers of the trustee
in managing the trust assets
and distributing the trust income.
Trusts can be unit trusts or discretionary trusts.
In a unit trust, beneficiaries hold units in the trust
in proportion to their entitlement to distributions.
In a discretionary trust, the trustee has discretion
on the distribution of entitlements to beneficiaries.
Trusts are not separate legal entities,
and so beneficiaries are taxed
on the net income of the trust.
However, the trustee is taxed
where there are no beneficiaries
presently entitled to the income,
or where a presently entitled beneficiary
is under a legal disability.
A joint venture is an agreement between two parties
to carry on a business together.
The parties pull their resources together
with the aim of achieving a specific goal,
which they would otherwise
be unlikely to achieve individually.
A joint venture operates through agreement
where each party shares
in its revenues, costs and profit,
but where each party is only liable
for their own actions and undertakings.
To recap, there are many different structures
available to operate a business,
with each having their own legal
and taxation implications.
It is important to think ahead
to the intended goals and objectives of the business
to ensure that the most appropriate structure
is put in place.