Issues and Laws in Converting a Sole Trading Business into a Company

Running head: CASE STUDY ASSIGNMENT
CASE STUDY ASSIGNMENT
Name of the Student:
Name of the University:
Author Note:

1CASE STUDY ASSIGNMENT
1) Issues:
The issues that are to be resolved in this care as follows:
 The steps to be followed for incorporating a company?
 The advantages and disadvantages of running company?
In the light of above two issues, Michael & his sons are needed to give advice.
Laws:
There are some differences between a business of sole trading and a company. The main
is the distinct and separable legal identity of company from the members as compared to sole
trading. The below enumerated points to be compared and discussed to convert a business of
sole trading into a company.
 Steps and costs of setting up a company
 Taxation
 Paper work volume and subsidiary costs
 Business income assessment
 Business control
All the above mentioned points can be discussed in the light of the Corporations Act 2001 (Cth)
for a company. Setting up a company is complicated and complex when compared with setting
up of a business of sole trading. The registration of the company is to be done with ASIC or the
Australian Securities and Investments Commissions by referring to Form 201. Such registration
is to be complied with section 117 of the CA 2001. Such company registered with ASIC will be
subjected to control and observation of it. The procedure of setting up of a company is given in

2CASE STUDY ASSIGNMENT
s. 1.5.3 of the Act. In the contrast, setting up a sole trading company is simple and easy. Its
registration is not needed. No need of separate company name is also there but a company name
has to be determined and then registered. Apart from this, sole trading does not need separate
account in bank which is mandatory in company.
Taxation scheme in company is advantageous to that of sole trading. In company,
taxation is done for the separately whereas in trading solely, the income out of it is calculated
together with the personal income of the sole trader. As a result of this, tax burden is more in
sole trading. In company, since it is calculated separately from the personal incomes, the burden
is less. In company, the rate of tax is 27.5% and 30% for a small company having turnover not
more than 10 million $.
A sole trading business requires less paper work and less operating costs. In this business,
separate lodging of tax return is not needed; it can be clubbed with the tax return of the sole
trader. But in company, separate tax return is to be lodged plus all the financial records is
needed to be maintained for at least 7 years as per CA Act. The ASIC review the company
yearly. The company also incurs high cost of running like fee for business name registration, fee
for annual review and other fees.
In business of sole trading, money earned by the business is treated as the income of the
trader although deductions can be made from it for business running cost. For company, its
income remains its only and not clubbed with income of anyone else. Moreover the sole traders
are liable personally for the company’s all the losses and debts. On the other hand, due to the
distinct entity, the directors or others are never liable for the debts and losses of the company
provided they are not incurred for act of negligence by them. It is the main disadvantage of sole