Business Structure - Company

Choosing a business structure when starting up a business is an important element of the setup phase.

Business structure is important as it can impact on taxation, liability of owners, succession, ownership issues and disposal of your business.

A company is a legal entity separate form its shareholders and is managed by a director who has additional legal and reporting obligations.

Companies have always been popular for both limiting liability for business owners and for taxation planning. However, due to legislative changes and case law, many of those benefits have been diluted over the years.

For example, company directors today have a much larger burden of responsibility for the operations of the business than their counterparts two decades ago.

As far as taxation is concerned, the reduction in marginal tax rates and increases in income thresholds, taxation benefits have also declined. For example, in 1989, taxation benefits arose when business profits exceeded $70,000 for a typical mum and dad business. The equivalent tax benefit under current tax rates and income thresholds would not apply until business profits exceded $150,000.

Regardless, companies are still popular for business operators for several reasons:
  • limited liability (but increasingly subject to changing legislation and case law)
  • fixed company tax rate of 30%
  • continuity of ownership
  • a company structure can effective separate management (directors) and ownership (shareholders) of a business
  • higher setup and maintenance costs
  • popular as trustee for trust and superannuation structures
Due to the "separate legal entity" status of a company, sub-contractors in various industries are increasingly required by contracting businesses to use this structure.

The ATO's Personal Services Income (PSI) regulations can impact on labour only type business operations. Advice should be obtained from a registered tax agent or practicing accountant.

For a FREE fact sheet ==> Company business structure

For a summary of the four types of business structures ==> Business Structures Explained

Copyright 2014. My Tax Zone.