4 SOLE TRADER? A Sole Trader is a person in business on their own. The individual who operates the business takes on all rights and liabilities associated with the business.All of the property and business assets are owned by the sole trader.
5 SOLE TRADER? Advantages: Keeps it simple No complex legal arrangements No establishment costs and minimal costs for upkeep of the businessNot required to consult anyone in making business decisionsMinimum legal disclosure = more privacy
6 SOLE TRADER? Disadvantages: Liable for all the obligations of the business and in the event that the business is not able to meet its debts the sole trader must cover the shortfall from own fundsOnly way to raise capital is by borrowingAs the owner is the business it can be difficult to sellIndividual tax rate is higher than a company tax rate
7 PARTNERSHIP? A partnership is not an entity in its own right. It is merely a form of shared ownership of property and an agreement to share certain benefits and obligations.A partnership is defined as the relationship between persons carrying on business in common with a view to a profit.
8 PARTNERSHIP? Advantages: Less costly to establish than a company or trustInexpensive to runEasy to understandCan provide some flexibility in the partners agreementIncome splitting between partnersDisadvantages:Partners are jointly and severally liableGenerally no asset protectionSome tax disadvantages
9 COMPANY?A company is seen by the law as being a legal entity separate to its shareholders. Like any individual person, a company can own property and can sue and be sued. Companies are more regulated than other structures.Proprietary companies only require one director and one shareholder.
10 COMPANY? Advantages: Taxed at the company rate of 30% Retain profit Separate legal entityCan own property in its nameShareholders are generally only liable for the value of their sharesTax minimisation schemesOwned and operated by only one shareholder and directorBuy and sell shares without touching underlying assetsOnly one director needed if a Pty Ltd company
11 COMPANY? Disadvantages: Complicated and expensive to set-up Hard to sell shares to non-shareholdersMinority shareholders have little or no inputCan only leave the shares (not the assets) in the company to your beneficiaries under your will
12 FAMILY TRUST?Trusts are generally better than companies. It is hard to get money out of a company. Employees have to be truly employees. You can’t just pay your spouse a salary of $150, if they are not working in the business. Trusts allow you to distribute to more people. Most importantly, you can sell assets out of a trust and possibly get the tax rate down to 12% (or zero). You can also use the small business CGT concessions.
13 Family Trust? Advantages: Limited liability Trading results are confidentialSplit incomeProtection for bankrupt beneficiariesAbility to distinguish between income and capital beneficiariesThe streaming provisionsFranking creditsAttribution relating to distributing capital gains to beneficiaries
14 FAMILY TRUST? Disadvantages: Cannot distribute capital or revenue losses to its beneficiariesBeneficiaries cannot offset losses against any other assessable income such as salary, interest, dividends etc.Cannot retain income if you do it is taxed at 48.5%Only last for 80 yearsNot really useful outside the family unitNot as good as a Testamentary Discretionary Trust
15 WHAT IS A UNIT TRUST?A unit trust is a trust in which the trust property is divided into a number of defined shares called units. The beneficiaries subscribe for the units in much the same way as shareholders in a company subscribe for shares.In an ordinary unit trust, a beneficiary is entitled to the income and capital of the trust in proportion to the number of units held. A unit in a unit trust is really just a means of describing the share in the trust fund to which the unitholder is entitled.
16 Unit Trust? Advantages: The main advantage of the unit trust over other types of trusts is that the parties involved are issued with units which (like shares):Define that party’s interest in the assets and income of the trustCan be easily transferredCan be re-acquired by the trustee
17 Unit Trust? Disadvantages: As the units themselves are an asset, a unit trust does not offer the same sort of asset protection as a discretionary trust does. If a person is made bankrupt, then the person’s units will be treated like any other asset and sold to raise funds to pay their creditors.Another disadvantage of a unit trust is that tax-free distributions cannot be made as easily from a unit trust as from a discretionary trust.Also the flexibility and the advantage of being able to distribute on a discretionary basis is not usually present.