Comparing Business Structures: Partnership, Company, and Family Trust

This report provides a comparative analysis of three key business structures: partnerships, companies, and family trusts. It begins by examining the advantages and disadvantages of partnerships, including ease of setup, shared skill sets, and unlimited liability, along with the tax implications. Next, the report discusses companies, highlighting limited liability and tax rates, while also acknowledging the complexities of operation and taxation of shareholder distributions. Finally, it delves into family trusts, outlining the tax benefits related to capital gains and asset protection, but also the potential drawbacks such as beneficiary uncertainty and high tax rates. The report also includes references to relevant case law and academic sources to support its analysis. This analysis is crucial for business owners to make informed decisions about the most suitable structure for their needs.

Case law

TABLE OF CONTENTS
Section C....................................................................................................................................3
(a) Partnership........................................................................................................................3
(b) Company...........................................................................................................................4
(c) Family Trust......................................................................................................................4
REFERENCES...........................................................................................................................6

Section C
(a) Partnership
The partnership can be between husband and wife as per TR 94/8. In case Betty
switches from sole trader to partnership entities then there are certain advantages and
disadvantages she is having to face which are stated below (Grob, 2017).
Advantages:
 Entering into partnership is very cheap and requires less paper work and few start up
cost in respect to the general partnership as compared to other forms of business
organizations.
 Opportunity for getting wide range of skill sets which is one of the advantages of it as
each partner will bring in different skill sets in the business which will enhance the
opportunity to create more capital and resources.
 Partnership firm is simpler to operate as compared to sole trader structure, is there is
no reporting obligation as the work is carried out is completely up to partners
themselves. No tax on the personal income of partners.
Disadvantages:
 Under general partnership, each partner will be having a unlimited liability which
means that in case of any problem, the personal belongings of the partners can be
accessed.
 The profits of the partnership are distributed among the partners as the agreement,
which means that the no one partner will receive full amount (I. R. Commrs v.
Williamson (1928) 14 T.C. 335).
 In case, any of the partner fails to pay his or her share, then it is the obligation of
other partners to jointly make the payment.
 Under partnership, the business may not be able to take the benefit of government
grants and other tax concessions such as early stage investor concessions.
Tax requirements
Betty would be required to file for partnership tax return which would be declared as
the income earned by the partnership firm and it also provides distribution of income among
partners. Tax rate under it is:
Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200

$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000
$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000
$180,001 and over $54,097 plus 45c for each $1 over $180,000
(b) Company
If the business structure is switched to companies then following are the advantages
and disadvantages associated with it (Hanlon and Pinder, 2019).
Advantages:
 The principle advantage is that of limited liabilities of the shareholders. A company
can only be forced to pay only to the extent of the value of the assets and liabilities of
the business.
 All the legal aspects are done under the company name and not by the directors and
managers name. The tax rate for companies is less in comparison to the highest rate for individuals,
which is, 30% on the taxable income and in case of small business it is subject to
reduced tax rate of 27.5% which has been reduced to 26% in 2020-21 and 25% for
2021-22 income year.
Disadvantages:
 It is very complex to run the companies as compared to other forms of business
structures.
 The profits which are distributed to the shareholders are applicable to taxation.
(c) Family Trust
Under setting up the family trust following are the pros and cons of it.
Advantages:
 The major tax related benefit is that the trust is entitled to discount on the capital gain
by selling long term assets and even selling of shares are also eligible for capital gain
discount of 50% which was not there in company structure (Evans, 2019). A family trust helps in protecting the assets such as businesses and investments. A
fully discretionary can stop the beneficiaries and creditors in splitting the assets at the
time of events like divorce and bankruptcy.
Disadvantages:

 The beneficiaries cannot necessarily expect of receiving their share of assets as the
allocation can be changes in a whim. This can be studied in a recent case study of
Kennon vs Spry, which shows that the even trustees decision can be overturned.
 The family trust distribution tax is applied when the distribution is made to other than
the family group, that is, outside.
 The amount of tax paid is high, which is, top marginal rate of 47% which includes
Medicare levy.
 The trustee of the family group will be liable for trustee beneficial non-disclosure tax
in case, the share of net income is included the assessable income of the trust
beneficiary as per the section 97 of ITAA 1936.
Taxation
Under family trust, the tax is not calcualted on the trust but instead the income derived
from it allocated among the beneficiaries who are then taxed individually at teh personal tax
rates. The tax is only paid by the trust when the income is not distributed among the
beneficiaries. Under this, trust is get taxed at teh highest marginal rate.

REFERENCES
Books and Journals
Evans, A. C., 2019. Why we use private trusts in Australia: The income tax dimension
explained. Sydney L. Rev.. 41. p.217.
Grob, P., 2017. Tax governance and justified trust. Taxation in Australia. 52(5). p.261.
Hanlon, D. and Pinder, S., 2019, October. The Impact of Australia's Income Tax System on
Company Ownership Structure. In Australian Tax Forum (Vol. 34, No. 4).