Q: Do I have to form a corporation in order to turn my hobby into a business?
A: To start a business, you don’t have to form a corporation. The business structure you can choose are sole trader, partnership, company and a company. You can start as a sole trader, then develop your own business to a partnership or company later.
Q: To name my business, do I need to follow any rules?
A: Firstly, your Australian Business Number (ABN) will connect to your business name when you register. As a sole trader, if you do not set your business name as your full name, you will need to register it.
A partnership or a trust’s name needs to be registered when the business name is not your and your partner’s full name. A company needs to register the company name when you register your company.
Q: Where can I check if my preferred business name is used by someone else?
A: To check if your business name has been registered by others, you can go through the Australian Securities and Investments Commission (ASIC) website. You should not use the business name that is already registered.
Q: How do I register my business?
A: You may receive suitable advice and structure from your accountants, business advisors or lawyers. You can also visit ASIC website for more information if you would like to register your business by yourself. We can also help you register your business, find out more here.
Q: Is it necessary to open a separate bank account as a sole trader?
A: Yes, it is. To separate your business and private account will make you and your accountant’s life much easier. There is no legal requirement to open a business bank account as a sole trader, but you need to clarify your personal income and expenses in your cashbook.
For other business structures (partnership, company and trust), you must have a separate bank account for taxation purposes.
Q: Where can I ask for the advice of starting a business?
A: Ask someone who already has experience in business, or you can always consult the recommendations from an accountant or a lawyer. Especially related to the legal document or the tax returns.
Australian Tax Office (ATO) also provides help and information for the business owners.
Q: The pros and cons between different business structures?
A: A sole trader is an individual running a business. It is the simplest and cheapest business structure. If you operate your business as a sole trader, you are the only owner and you control and manage the business. On the other hand, a sole trader bears full responsibility for any liabilities arising out of the business; this can extend to the owner’s personal assets to pay business debts; the Sole Trader has to pay the tax on all the profits.
A partnership is a business structure made up of 2 or more people who distribute income or losses between themselves. It is easy and cheap to set up. They share the profits, the resources and skills from all the partners. However, the liability of the partners is unlimited, and extends to their private property and Partnership assets. each partner is responsible for the other partner’s share of the business liability.
If you want to lower the risk of liability, you can choose to form a company. Liabilities are limited to the Company’s assets only. It will not extend to the owner’s assets. However, a company is a more complicated and expensive structure to set up due to compliance costs. There are additional legal and financial reporting obligations, and it is not suitable for all business start-ups.
The advantages of trust is that Income can be distributed at the trustee’s discretion to beneficiaries with the lowest marginal tax rates to minimise the aggregate tax beneficiaries pay. Although, a trust structure is more expensive and complex to establish and maintain than a company structure.
Q: Do business skills or experience is essential for starting a business?
A: Yes, having business skills or related experience might help you to stay away from failure. You should always learn and prepare business knowledge and skills before you start a business. Set up a clear goal to your business, looking for advice from those who have experience or the business advisors. Figure out your target market, and analyse the trend of the industry. Also, the enthusiasm of your goal will lead you to succeed.
If you need any suggestions and seek assistance, contact BOA & Co. accountants on 1300 952 286, our Specialist will be pleased to assist you.