Business Structures

Answer: The choice of a business structure is one area where you should seek professional advice from your accountant and also your solicitor. You should make sure you understand the advantages and disadvantages of each type of structure before you make the decision. All aspects of each structure should be explored, and a choice made which best suits the way you intend to run the business. More detailed information about the advantages and disadvantages of each structure can be obtained from the information sheet titled "Business Structure" which is available from your local BEC or from the Small Business website www.smallbiz.nsw.gov.au

Q2. What is a business name and how do I register one?

Answer: A Business Name is the name under which either a sole proprietor, partnership or company may choose to trade. To run a business in NSW you must register your business name if it is being conducted under a name other than that of the owner. All trading names unless registered under other legislation eg: Company names under the Corporations Law, must be registered as a Business Name.

Business names can be registered at the Department of Fair Trading, and you can also check to see if another business already has the name you have chosen. Generally a name that is already registered cannot be adopted by another organisation. Also names that are misleading or offensive cannot be registered. Once registered your business name is valid for three years at which time renewal is required, registration costs around $120.00.

The Department of Fair Trading: www.fairtrading.nsw.gov.au Tel. (02) 9286 0007.

Q3. Can I trade without registering a business name?

Answer: If a business is being run under any name other than that of the owner the name (surname and given names and/or initials) must be registered with the Department of Fair Trading. For example, if words are added to a name, it must be registered (eg. Bill Brown & Brothers).

Q4. Can any name be used for a business?

Answer: No. There are some names you will not be allowed to register. These include:

Names that are the same or similar to a registered business name (in state of registration) or company name and where the business is similar.
Names that indicate a business is a charity or non-profit organisation. You may not use words such as Associate, Club, League, Society or Institute.
Names that the Attorney-General has decided cannot be registered; for example, words that indicate some connection with the Crown, Government, international games or words that are offensive.
Names that are misleading as to the nature of the business.

Business names can only be registered on a state-by-state basis, so you should register your business name in each state you intend to operate. Alternatively, you can form a company (incorporate). Companies are registered and recognised nationally.

Q5. Can I invite the public to invest in my registered business name?

Answer: No. A business owner cannot use or refer to a registered business name in connection with an invitation to the public to lend or deposit money with the business.

Q6. What is a sole trader?

Answer: If you conduct a business alone, without a partner, then you are classified as a Sole Trader. This definition applies whether or not you have employees working for you. It is an inexpensive business to establish and maintain, with the least reporting to Government.

Q7. Will I be personally liable for the debts of the business?

Answer: Yes, you are personally liable for all business debts, which means your assets may be at risk.

Q8. What is a partnership?

Answer: A partnership enables a group of people to contribute their time, talents and money towards the business. In return they share the responsibilities and profits. In the absence of a formal partnership agreement the law will assume that each partner has an equal share. The responsibility of running the business is shared, and ability to raise finance for the business is enhanced.

It should also be noted that all partners may be personally liable if the business incurs any debts. If you are entering into a partnership it is a good idea to draw up a partnership agreement, there is a fact sheet about this available at your BEC or you can get some information on the Small Business Website at www.smallbiz.nsw.gov.au

Q9. What is a limited partnership?

Answer: A limited partnership is a variant of an ordinary partnership. The NSW Partnership Act makes provision for limited liability partnership structure whereby the liability of a partner contributing capital can be limited to the amount of financial contribution, provided that the person doesn’t take part in the management of the business.

Q10. What is a limited partner and what is a general partner?

Answer: A Limited Partner is a passive investor in a business. A Limited Partner does not manage the business and has limited liability towards debts and obligations of the business to the amount contributed.

A General Partner is responsible for the management of the business. A General Partner has unlimited liability for the debts and obligations of the business and has the power to bind the Limited Partnership.

Q11. How do I set up a company and how much does it cost?

Answer: There are a number of ways to set up a company, the easiest way of starting up a company is to buy what is known as a shelf company, and then change its name if necessary. This can be done through an accountant or solicitor or companies that specialise in selling shelf companies. You can also register a company yourself through the ASIC directly, or through their website: www.asic.com.au

The first step in registering a company is to reserve the name. The fee for this is $36. The next step, to set up a company with a single director, costs $720. Alternatively you can purchase a shelf company for between $950.00 to $1350.00 from an accountant or lawyer. More information is available on the ASIC website.

Q12. What is a 'Proprietary Limited Company' and what is a 'Limited Company?'

Answer: A 'Proprietary Limited Company' is a private company registered by the Australian Securities and Investments Commission. At least one person is required to form a 'Proprietary Limited Company' who must fill the role of both Director and Secretary. Companies are required to lodge annual returns each year. A 'Proprietary Limited Company' cannot invite the public to invest or deposit money with it. The liabilities of the shareholders are limited to the share capital they have subscribes and any debts thy may have personally guaranteed.

A Limited company is a public company consisting of at least five people who fill the roles of directors and secretaries. Limited companies also have shareholders and can raise capital by offering shares to the public by issuing a prospectus.

Contact the "Australian Securities and Investments Commission" for further details.www.asic.com.au

Q13. Which Government Department registers companies?

Answer: The Australian Securities and Investments Commission registers all Australian companies - both public and private. Any company that is registered with ASIC will have an ACN number (Australian Company Number). See www.asic.com.au

Q14. Can I set up a company in Australia if I live overseas?

Answer: Yes, but at least one of the directors of the company or the company secretary needs to live in Australia. If it is a public company, then at least two of the directors need to live in Australia.

Q15. What is a trust?

Answer: A trust is a business structure whereby the trustee holds property and earns and distributes income on behalf of the beneficiaries. One of the most common types of trusts is a family trust. The trustee (usually a company) owns the property and distributes income to the beneficiaries of the trust, who are usually family members. In this way a person who would otherwise earn a large taxable income can split his or her income between family members.

Q16. How does a trust work?

Answer: Income is earned by the trust company. The trustee is empowered to distribute the trust income to whom of the beneficiaries and it what proportions he or she chooses. In the case of a family trust the trustee could for example distribute income to the children of the family, thereby reducing the taxable income of the parents.

Q17. How do I set up a trust?

Answer: Your accountant or solicitor will help you to establish a trust. As it is a complicated way of conducting business you will need professional advice to ensure that the laws are complied with and you get the most out of this type of arrangement.

Q18. What are the advantages of a trust structure?

Answer: The main advantage of a trust structure is tax minimisation.

Q19. What is a cooperative?

Answer: A cooperative is a business structure that has corporate status, that is, it is a separate legal entity and has the advantages of limited liability. Cooperatives are created under the Cooperatives Act 1992 (NSW).

Q20. What is the difference between a cooperative and a company?

Answer: The main difference between cooperatives and companies is that under a company structure there is a profit motive, returning dividends to the members of the company, whereas a cooperative operates on a service motive, providing adequate services to its members and any return of capital is limited.

Q21. How does a cooperative work?

Answer: Unlike a company, all members of a cooperative have only 1 vote, irrespective of their shareholding. It is run in a similar fashion to a company. A board of directors is elected which controls the management of the business of the cooperative.

Q22. What are the advantages of a cooperative structure?

Answer: A person joining a cooperative takes advantages of the facilities provided by the cooperative. These services may include advertising, marketing, and purchasing as well as other types of services. Members of the cooperative in this way can enjoy the commercial benefits of a larger organisation.