Business Structure Analysis: Corporate vs. Sole Proprietorship

This assignment provides an analysis of two primary business structures: Corporate (Companies) and Sole Proprietorship, offering valuable insights for individuals planning to start a business. The Corporate structure, governed by the Corporations Act 2001, involves incorporation, separate legal entity status, limited liability for owners, and specific taxation and reporting requirements, including GSTN and ACN registration. The Sole Proprietorship structure, on the other hand, is characterized by direct owner responsibility for all aspects of the business, unlimited liability, and simplified accounting. The assignment details key features of both structures, including formation, liability, taxation, reporting obligations, and ongoing costs, providing a comparative framework for making informed decisions about the most suitable business structure. The analysis also references relevant ATO resources for further information.

Dear Sam,
I am glad to hear that you want to start your business. This decision comes with lots of roles and
responsibilities. To share your burden, I want to give you insight about the business structure that you can
choose upon to proceed further. The two business structure that I propose for you are
1. Corporate / Companies – In this form, a company is incorporated and business is run in the
name of the company. Main features of this form are as below:
a. Formation of company is required under Corporation Act, 2001. Until the company is
registered under Corporation Act, 2001, it can’t come into existence.
b. The company has a separate legal entity and bears all the losses and liability itself. In this
form, the liability and control of owner is limited to the number of shares acquired by
them.
c. Since, company is a separate legal entity, all the profits earned or losses incurred are
taxed in the name of corporate only. It is not clubbed with the owners income. Further,
the company needs to file its return with ATO. The company has to take GSTN to run its
business if the annual turnover is above $75,000 and the company has the liberty to pay
the installment of taxes using PAYG method.
d. The business name can be registered at the time of registration of the company. After
registration a unique number is allotted to the company and is called Australian Company
Number (ACN). The company can opt to use this name as well. But if the company opt to
use some other name, than the name should adhere to the corporations act 2001
requirements. For example, it should contain word “Proprietary” abbreviated as “pty” at
the end of the name.
e. Ongoing costs – For renewal of proprietary company, annual review fee of $254 is
required to be incurred.
f. Company is formed under the Corporations Act 2001. Hence, there are lots of law
compliances and reporting requirements to comply with. Similarly, it needs to follow
double entry record keeping using mercantile system only. Hence, it is costlier and
difficult to operate.
2. Sole Proprietorship - In this structure, the proprietor is responsible for all incomes and losses,
assets and liabilities. It is manages by the owner only. The key features of this structure are as
below:
a. No license is required for carrying on business.
b. The owner is the only responsible person so all the control lies with him. However, the
proprietor’s liability is unlimited.
c. The income of business is taxed as the income of owner and business assets repairs and
maintenance, depreciation can be claimed as deduction from taxable income.

d. If business employs employees then it is required to pay PAYG and FBT. And if the
annual turnover is above $75,000, then the proprietor is required to take GST registration
and can pay tax installment, by using PAY AS YOU GO (PAYG) facility.
e. Any accounting method can be used to prepare book of accounts.
f. No requirement of business name registration, if the business is set up in the name of
sole proprietor but if the business is set up with some other name then the business
name should be registered with Australian Securities and Investments Commission
(ASIC).
g. With respect to legal costs, the only ongoing cost is of renewal of business name.
h. There are no as such reporting requirements.
References:
'Company' (Ato.gov.au, 2017)
<https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/
Choosing-your-business-structure/Company/> accessed 23 September 2017
'Choosing Your Business Structure' (Ato.gov.au, 2017)
<https://www.ato.gov.au/business/starting-your-own-business/before-you-get-started/choosing-
your-business-structure/> accessed 23 September 2017