Australian Government and Business Structure †MyAssignmenthelp

Question: Discuss about the Australian Government and Business Structure. Answer: Introduction Choosing the legal structure for a business is an important decision which is taken by its owners. The decision has a significant impact on different areas of the business including legal liability, control over operations, and payment of tax[1]. It is a crucial decision and owners are required to evaluate different factors in order to select a suitable structure for the business such as control, limitation of liability, tax implications, flexibility and future needs, continuity of existence, on-going administration and others[2]. A legal structure can be changed by its owners as the business grows or changes. This report will focus on analysing different business structure by evaluating their key characteristics. Further, the report will compare and contrast between advantages and disadvantages of different business structures. In Australia, there are three different business structures which are commonly used by owners[3]. Sole trader Partnership Company Each of these structures has different responsibilities and liabilities which affect costs, asset protection, tax liability and other factors in a business. Owners are not locked in a structure, and they have the option to change the structure as the business grows or changes[4]. In order to select a suitable structure for a business, owners are required to look into advantages and disadvantages of each structure. In a sole trading business structure, a person runs the operations of the business and he/she is responsible for handling different tasks. In this structure, debts and losses of the business are not shared with anyone else. It is a simple and relatively inexpensive structure for starting a new business. As a sole trader, the owner of the business generally take all decisions regarding starting and running the operations, although he/she can employ people for help as well[5]. In sole trading structure, the owner has full control over operations and decisions of the business. The owner can run it how they please and take business decisions without the interference of others. Sole traders are the sole owners of the business which means they retain all the profits of the business. They did not have to share or distribute the revenue to any other person. However, the salary of employees, if any, is required to be paid from the profits[6]. The information regarding working and operations of the business in sole trading remain private in this structure. The information about the business and the owner kept private, unlike, limited companies as their information is public. There is also no reporting requirement for a sole trader. Often people prefer sole traders because they are able to provide a more personal service to local customers than compared to an organisation. The speciality in personal service is more appealing to potential customers, especially in local communities. Due to lack of reporting and full control over operations, sole traders are able to make decisions more quickly than compared to other business structures. It improves efficiency in the business by making it simpler to operate. Sole traders did not have a separate entity in the eyes of the law, like a limited corporation[7]. Therefore, they are subject to unlimited liability. This means business owners can be held personally liable for repaying the debts of the business. The court can give order them to pay their business debts by selling their personal assets and by using their personal savings that they have both inside and outside the business. Sole traders are the only investor in the business, and they find it difficult to raise finance for their business. Due to lack of financial support, they face difficulty while expanding their business in the future. Sole traders make all the decisions in the business which means the owner have to take all decisions without assistance from others. Therefore, the success or failure of the business entirely depends upon the decisions of the sole trader. Sole traders are unable to benefit from economics as compared to limited corporations management and larger firms who invest heavily to purchase in bulk which enables them to charge higher prices for their projects or services[8]. In a partnership business structure, a number of people joined together in order to carry on a business. People select partnership business structure over sole trader if they are entering into a business with another person or a number of people (cannot exceed more than 20 people)[9]. Partnership business structure is divided into two parts general and limited. A partnership firm can include up to 20 partners which mean they are able to fund the business with start-up capital. More partners mean more capital for the business which provides better flexibility and potential growth options[10]. The number of partners is higher than compared to a sole trading business which means more capital for the business, but it is lower than a company since it has the options to raise capital from the public[11]. It is easy to form, manage and run a partnership as compared to a company, whereas, it is more complex than compared to a sole trader. There are less strict reporting and governance requirements as compared to a corporation whereas they are more complex than a sole trader. In a partnership, each partner shares the responsibility of running or operating the business. It allows them to contribute to the business decision-making process by using their abilities which assist in taking beneficial business decisions. Unlike sole traders, the success or failure of the business depends upon the decisions of each partner. While taking business decisions, partners can share their expertise to help each other out in taking effective business decisions. More partners more brains which allow them to take collective decision for solving issues relating to the business. Expertise of each partner assists in decision-making process whereas sole traders take their business decision without assistance from others. Unlike sole traders, partners have to discuss and take collective decisions in the business which increases the chances of disagreements between partners. It is obvious that people have different ideas regarding how a business should run and operate which creates disagreements between partners which might lead to disputes. Often disputes result in dissolving a partnership which is not the case in sole trading structure. General partnerships have unlimited liability which means each partner share financial risks and liability of the business, just like a sole trader. However, partners have the options to create a limited liability partnership in which their liability is limited to the capital that they invest in the business. This structure is similar to a limited liability company without limitations such as complex reporting process while still taking advantages of the flexible business model. All the partners have to sign a partnership agreement which lays down terms of the partnership. This means partners have less freedom in some circumstances than compared to a sole trader. However, as compared to a limited company, the partnership business structure is relatively flexible. Just like sole traders, partners have to pay tax and submit self-assessment tax return each year. They are registered a self-employed and subject to a greater level of personal taxation than compared to a limited company management. Therefore, in some cases, setting up a limited liability company is a more suitable option than compared to a limited liability partnership[12]. In a partnership, partners share profits as per their profits sharing ratio which is provided in the partnership agreement. Generally, partners share equal profits or based on the ratio of their capital contribution. Unlike sole traders, sharing of profits may create conflict between partners result in the dissolution of the partnership[13]. A company business structure is suitable when starting or growing a business. A corporation has separate legal entity from its owners, unlike sole traders or a partnership firm. This means that a company is an artificial person who has individual rights and liabilities and its owners cannot be held personal liability for its debts[14]. It is a complex business structure then compared to a sole trader and a partnership firm, based on its administrative costs and additional reporting requirements. A corporation is registered with Australian Securities and Investment Commission (ASIC), and it has to comply with the regulations providing in the Corporations Act 2001. A company has a separate legal entity which is different from its owners which means it can purchase and sell properties in its name and entered into a contract with other parties. It also means that a company has perpetual succession which means it will continue to exist even after the death of its owner which is not the case in sole traders and partnership firms as they cease to exist as their owners die. The directors of a company are protected under corporate veil, and they cannot be held personally liable for actions of the company. However, its case of fraud or deceptions, the court can use doctrine of piercing of corporate veil to held director liable for their actions[15]. A company has limited liability which means its owners or members cannot be held personally liable for its debts or liabilities. The members are only responsible for the amount of capital invested by them into the firms operations and their personal assets be used for settling companys debts unlike sole traders and general partnership structure. Limited companies are taxed on their profits. For base rate entities (turnover less than $25 million), the tax rate is 27.5 percent, and for other corporations, the current tax rate is 30 percent[16]. Unlike sole traders and partnership firms, the income of a company did not include in the personal income of its members. There are a number of deductions and exemptions available for companies which provide tax advantages to them. The members can claim deductions for train, bus, aeroplane and taxi fare and other accommodations costs such as hotel, travel, food and others. Members can also pay themselves salaries from companys income which provides them tax advantages. Establishing a company is relatively expensive than compared to a sole trader and a partnership firm. Members have to comply with a number of complex requirements and pay different fees for starting a company such as legal, rent, insurance, brochures, consultation and others[17]. There are a number of complex and restrictive regulations which are necessary to comply by a company regarding maintenance of its accounts. As compared to a sole trader and a partnership firm, corporations have to comply with strict reporting system which requires them to submit annual reports. Managing and operating a company require assistance from a number of professionals who perform different duties in order to ensure that the firm is operating effectively[18]. In order to effectively control a company, directors are required to delegate their duties to different employees which makes the process of controlling complex than compared to a sole trader and a partnership firm. There is more complex controlling system in corporations as compared to a sole trader and a partnership. Conclusion In conclusion, each business structure has different advantages, and disadvantages and owners are required to analysing them before selecting a suitable structure for them. The sole trading business structure is relatively inexpensive than compared to a partnership firm or a company. However, a corporation structure provides higher growth opportunities than compared to a sole trader and a partnership. A limited liability partnership incorporates advantages of a separate legal entity without complex reporting and operating requirements of a corporation. 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