1. Sole proprietor
  2. Partnership
  3. Company
  4. Trusts

A sole proprietor or sole trader is an individual who operates a business on their own account.

The main characteristics are:

  • The success or failure of the business fails on them solely;

  • They solely responsible for all cots and bear all risk;

  • They are entitled to all profits;

  • Their income taxed at their marginal tax rate.

Partnership is where two or more individuals carry on business together with an idea to making a profit.

Partnership should be documented in a Deed of Partnership to reflect their agreement.

The main characteristics are:

  • A partnership does not have a separate legal personality as does a company;

  • Partners usually each contribute skills, knowledge and capital jointly although the percentage of contribution can vary

  • Partnership property is jointly owned;

  • Partners act as an agents;

  • Partnership gives rise to fiduciary responsibilities;

  • Each partner pays tax on income at their own marginal tax rate;

  • Liability of the partners is generally joint and several.

Companies are regulated in the Corporation Act 2001(Cth). Shareholders represent the ownership of the company and the directors manage the company.

General characteristics of a company are:

  • The company is a separate legal entity to that of the directors and the shareholders;

  • The company has perpetual succession;

  • Shareholder’s liability can be limited;

  • Income of the company is taxed at the company rate.

Directors have a number of obligations including:

  • Acting in the company’s best interests;

  • Ensuring the company keeps up-to-date and correct financial records;

  • Not allowing the company to trade insolvent.

A trust involves property, assets and income being held by a trustee on behalf of beneficiaries.

Trusts are often adopted for their asset protection and tax minimization characteristics. There are a number of different trusts including: discretionary trusts, unit trusts, hybrid trusts, fixed trusts, testamentary trusts and inter vivos trusts. Different rules apply depending on the type of trust.

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