ACC1105 Assignment 2: Business Structure Analysis and Recommendation

This report, prepared for ACC1105 at the University of Southern Queensland, provides a comprehensive analysis of two primary business structures: sole trader and proprietary company. It begins by defining each structure, outlining their respective advantages and disadvantages, including ease of formation, liability considerations, and tax implications. The report then details the steps involved in registering a proprietary company in Australia, referencing the ASIC website for accurate information. A key element of the analysis involves a cost-benefit assessment, comparing the financial and operational aspects of each structure to determine the most suitable option for Jasper's cleaning business, Sparkling Clean Services. The report concludes with a recommendation for the optimal business structure, based on a thorough evaluation of factors such as liability, control, and long-term business goals, supported by relevant academic references.

ACCOUNTING PRINCIPLES

Introduction
One of the key decisions in the business management is the choice of the business structures,
in terms of the features, cost, longevity and scale of business and compliance requirements.
The following report is formulated with an objective to guide the management in terms of the
features of the sole trader structure and the proprietary company.
Types of business structures
Sole Trader
The most basic form of business structure is that of the sole trader and is most suited for the
small-scale businesses. There are numerous advantages associated in the sole trader. The
prime advantage of the sole trader is that it is comparatively easy to form and manage, and
involved less procedural formalities (Business.gov.au., 2019). The cost of formation and
management is lesser too. For instance, in order to register the business name for one year,
the cost is only $36 and three years registration can also be obtained for $85 (Department of
Industry, Innovation and Science, 2019). The yet another major advantage of the same is that
an owners does not loses their control in terms of the management and the day to day
functioning of the business. In addition, there is a lesser tax liability (Australian Taxation
Office, 2017). However, some of the disadvantages persist as well in the sole trader. The
main disadvantage is that the whole liability of the business is on the owners, which means
that in terms of the failure of business funds to meet the obligations, personal assets can be
used as well. In addition, there is absence of longevity of the business structure and the same
depends on the life duration of the owners. Lastly, the funds and assets are limited to the
estate of the single owner.
Proprietary company
The suggestion for the formation of the corporate business structure was extended based on
the popularity of the company form as stated in the Corporations Act, 2001. There are varied
advantages of the formation of the proprietary company as stated follows. The prime
advantages is that a company is comprised of a separate legal identity, which makes the
liability of the owners or the shareholders limited to the amount that is left to be paid on the
shares of the company (Australian Securities and Investment Commission, 2014). Thus, the
personal assets cannot be called for the satisfaction of the claims of the outsiders and thus,
there is a safety of the investments. The next advantage is that company itself is regarded as

the beneficial owner of the assets and funds and can sue the outsiders in its own common seal
(Hoggett et. al, 2018). Further, the life of the corporate can be extended as per the wish of the
members of the company. There are certain disadvantages as well, though not material but
worth paying attention too. There are several procedural formalities in the formation of the
company, administration and management as well, which are not only mandatory but costly
as well. For instance, number of meetings to be held, filing of the annual returns and financial
statements, corporate social responsibility requirements, maintaining the accounts and books
as stated and others specified in the Corporations Act. In addition, the disadvantage is that
there is a dilution of control of the business owners often as the company requires
professional expertise in the form of directors for management, as elected by the total owners
group, and there is a higher payment of taxes (Grigore, 2017).
Registering a company as per ASIC
The steps for the company registration after the choice of the said business structure are
specified as follows. The first step is to check the availability of the name for the company on
the ASIC website, and the same must be different from the already existing companies, and
reserve the same. The business name is obtained in the Form 201C. The next step is to decide
whether the company would be governed by the replaceable rules, own constitution or the
combination of the both. This is followed by understanding the roles and responsibilities of
the owners, checking of the eligibility of the subscribers, and obtaining the consent from the
members, officeholders of the company. Finally the company is registered with the aid of the
Australian Government's Business Registration Service (BRS). The overall cost of
registration of the company as prescribed on the ASIC website is $495 (ASIC, 2019). Some
other legal costs related to company formation is in the form of the solicitor fees.
Analysis of the cost and benefits
It is vital to note that there must be a balance between the cost in the management, risk
distribution and the control of the owners on the business affairs (Trad and Freudenberg,
2017). Though there are certain inherent complexities in the proprietary company business
structure, yet the distinct features make it a preference over the other business structure
forms. The prime supporting argument for the switch over to the company business structure
is that there is least cost in the rollover from one business structure to other as prescribed by
the latest legal rules in the year 2016 (Loannou, 2016).

Recommendation and Conclusion
As per the discussions conducted in the previous parts, it has been recommended to Jasper to
switch over to the proprietary company business structures because of the several advantages
associated with it, and the prime being the limitation of the liability. It is concluded on the
basis of the cost benefit analysis that though the procedural formalities of the company are
complex and costly, yet there is a benefit of risk and the overall security.

References
Australian Securities and Investment Commission. (2014) Small proprietary companies.
[online] Available at: https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/
preparers-of-financial-reports/lodgement-of-financial-reports/ [Accessed 1 Dec. 2019].
Australian Taxation Office. (2017) Small business entity concessions. [online] Available at:
https://www.ato.gov.au/business/small-business-entity-concessions/eligibility/ [Accessed 1
Dec. 2019].
Business.gov.au. (2019) Business structures. [online] Available at:
https://www.business.gov.au/planning/business-structures-and-types/business-structures
[Accessed 1 Dec. 2019].
Grigore, M. (2017). Optimizing Tax Costs relating to a New Business. Global Economic
Observer, [online] 5(1), pp.201-208. Available at:
http://web.b.ebscohost.com.ezproxy.usq.edu.au/ehost/detail/detail?vid=25&sid=ed0e73c8-
e2c5-4bfb-8d0c-b1214b18b879%40pdc-v-sessmgr06&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ
%3d%3d#AN=123298815&db=bsu [Accessed 1 Dec. 2019].
Hoggett, J., Medlin, J., Chalmers, K., Beattie, C., Hellmann, A. and Maxfield, J. (2018).
Financial Accounting. 10th ed. Brisbane: John Wiley & Sons Australia, Ltd 2018, pp. 400-
450.
Loannou, J. (2016). Small business restructure. Taxation in Australia, [online] 51(1), pp.33-
39. Available at:
https://search-informit-com-au.ezproxy.usq.edu.au/fullText;dn=196986216367287;res=IELA
PA [Accessed 1 Dec. 2020].
Trad, B. and Freudenberg, B. (2017). ALL THINGS BEING EQUAL: SMALL BUSINESS
STRUCTURE CHOICE. Journal of the Australasian Tax Teachers Association, 12(1),
pp.136-165.