LAW513 Corporate Law: Analysis of Business Structures in Australia

This report provides a comprehensive overview of the four main business structures in Australia: sole trader, partnership, company, and trust. It details the advantages and disadvantages of each structure, covering aspects such as liability, taxation, and ease of setup and dissolution. The report highlights that the company structure is often preferred in Australia due to its benefits, particularly in terms of limited liability and potential tax advantages. It also examines the tax implications of each structure, including marginal tax rates, tax credits, and the ability to claim tax deductions for employee superannuation contributions. Furthermore, the report references relevant literature and online resources to support its analysis, providing a well-rounded understanding of the subject matter. The report aims to offer a comparative analysis to assist students in understanding the key considerations when choosing a business structure.

LAW513 CORPORATE LAW

TABLE OF CONTENTS
Part A.........................................................................................................................................3
REFERENCES...........................................................................................................................6

Part A
One of the key choices that is required to make when beginning a business is its
structure. The decision of structure will rely upon the size and kind of business and how the
individual needs to run it. Each structure may affect key areas, for example, charge you're
subject to pay, resource insurance and expenses to set up. There are various structures that
one can browse when beginning or extending the business.
There are four most common types business structure in Australia which are
explained below along with their advantages and disadvantages.
Sole trader: The Sole Trader business structure is mainly suitable for small
businesses, especially those dependent on the proprietor's very own abilities (Trad and
Freudenberg, 2018). They can trade under their own name (for example Danny Green), or
can enlist a business name (Danny Green's Bakery). Sole Traders are at risk for tax
assessment on business salary which is incorporated in their yearly personal IT return and
charged at marginal rates.
Advantages: Proprietor has direct command over the business and is qualified for the
entirety of its prosperity Low expenses and less legal requirements is there for starting up the
business. As the business develops and expands, the structure of it can be very easily changed
without any problem. It leads to more noteworthy protection and simple to disband.
Disadvantages: Because of exchanging alone, sole traders bear full obligation
regarding any liabilities emerging out of the business. This can reach out to the proprietor's
personal assets for paying off the business obligations. The Sole Trader needs to make
payment of tax on all the benefits.
Partnerships: The business is ordinarily directed by at least 2 individuals, who have
the authority as the Owners or Principles of the business (Common business structures.
2020). The accomplices share the costs, benefits and misfortunes of the business, and the
organization requires its own Tax File Number. Building up a partnership agreement is
suggested, to set out the terms and states of the Partnership. The Partnership name must be
enlisted under the Business Name Act.
Advantages: It can get some benefits of taxation and the partnership is naturally
disintegrated on the demise of one of the accomplices. The available salary or loss of the

Partnership is circulated, according to the Partnership Agreement and if there no agreement,
it will be distributed equally.
Disadvantages: The partners are having unlimited liabilities, and reaches out to their
private property and partnership resources. With respect to tax assessment, a partnership is
required to file an IT Return and every accomplice is answerable for the other’s part of
business obligation.
Company: There are 2 forms of organizations: Public and a Private Company.
Privately owned businesses are commonly the most well-known (Chen, Ramsay and Welsh,
2016). A Public Company can be recorded on the Stock Exchange or as an unlisted Public
Company Shareholders own the company and directors are designated to maintain the
business. Like a Partnership, a Company should likewise have its own Tax File Number.
Advantages: The company is having limited liability and does not extend to the
personal assets of the owner and all the profits are charged at one rate.
Disadvantages: It is very complicated and costly as it includes compliance costs.
There are extra legitimate and money related obligations. It isn't right for new establishments.
Trust: In this, the business is moved to a 3rd party who has legitimate control to
maintain the business, and who disperses pay and additionally capital between the applicable
beneficiaries (Ingram, 2019). Trust needs to have its own Tax File Number and prescribed to
have a Trust Deed. It requires the trust deed which provides an outline about the how the trust
is going to be operated. Along with that it requires the trustees to carry out the yearly
administrative tasks.
Advantages: It can be utilized to hold property (capital) for beneficiaries There is
adaptability of distribution of income (Discretionary Trust). The discretionary trust provides
higher level of asset protection.
Disadvantages: Can be hard to disassemble and requires to have a separate tax return
for the Trust and recipients pay personal IT on their salary from the Trust. The beneficiaries
are required to pay IT on the income distributed from the Trust.
In Australia, company structure is preferred to operate business this is because of the
benefits which is being provided to the company form of business. Companies mainly pays
less tax as compared to other different business structures, for example, sole dealers or

partnership. Such companies are taxed on the profits earned at the company charge rate of
30%, which might be lower than the marginal assessment rates of its individual investors
(Why setup a company? 2020). At the point when investors get organization profits that the
organization has just paid tax on, they will regularly get tax credits through the company’s
imputation tax framework. The contribution which is being made by the company towards
the superannuation fund on the part of the employee can be easily claimed by it in the form of
tax deduction. The asset ownership under company has be transferred under few
circumstances without any significant stamp duty costs. Another advantage is that company
can a make retirement payment which can be claimed as tax deductible to all the employed
staff family members. Another advantage makes it more preferred is that of limited liability
of the shareholders. The company is considered as the separate entity from its owners. Also,
the losses can be moved from 1 company to another in the same group in case there is
common ownership of 100%. This structure provides assurance that the business will
continue in respect to management and ownership even in the circumstances of the death or
disability of the important person in the company as the shares can be easily transferred.
Along with that, all the legal arrangements are carried out in the name of the company and
not in the name of its directors or any other key person.

REFERENCES
Books and Journals
Trad, B. and Freudenberg, B., 2018. A Dual Income Tax System for Australian Small
Business: Achieving Greater Tax Neutrality. J. Austl. Tax'n. 20. p.93.
Chen, V., Ramsay, I. and Welsh, M. A., 2016. Corporate law reform in Australia: An analysis
of the influence of ownership structures and corporate failure. Australian Business
Law Review. 44(1). pp.18-34.
Ingram, P., 2019. Tax files: Discretionary trusts: Distributions in specie. Bulletin (Law
Society of South Australia). 41(9). p.26.
Online
Common business structures. 2020. [Online]. Available Through:<
https://www.business.gov.au/planning/business-structures-and-types/business-
structures >.
Why setup a company? 2020. [Online. Available Through:<
https://fclawyers.com.au/corporate-structuring/setup-a-company/ >.