Barrett Walker has a team of expert lawyers with a proven track record of excellence in advising our clients in establishing business and non-profit entities that are fit for purpose, compliant and that match a client's risk profile.
We also advise our clients on their obligations within the statutory framework and advise on best business practices, a unique advantage of a multidisciplinary firm.
Legal advice for business and non-profit organisations
At Barrett Walker, we advise on the set-up, structuring, restructuring, governance, dissolution, and tax obligation of different businesses and non-profit organisations. Our approach is uniquely comprehensive and advantageous because of our commercially-oriented practice and our multidisciplinary background informed by our experience in legal, taxation and consulting. We solve present-day problems for clients but also look to the long-term so that your organisation is well-positioned for sustainable growth.
We assess our client's risk portfolio, the size, nature of the business, taxation implications as well as other relevant factors to advise our clients on a business structure that is practical, economical and suitable for the client's needs.
Which business structure should you go for?
Not sure which business structure to go for? Read about the advantages and disadvantages of each.
1. Sole traders
Sole traders are a type of enterprise that is owned and run by one person. Acting as a sole trader is the simplest form for an individual to carry on a business. It is cheap and easy to manage, without any legal distinction between the owner and the business itself.
However, sole traders are personally liable for the trading liabilities of the business which exposes personal and family assets to business liabilities.
A company is a legal entity representing an association of people, and it is the most common form of legal structure for running a business. Although it involves some setup and administration costs, it protects individuals from personal liabilities to a certain degree. Further companies are taxed at a fixed rate rather than the individual marginal tax rate.
A company has the advantage of being able to retain its profits from year to year which allows for the accumulation of working capital for future investment. This is as opposed to trusts, partnerships, and sole traders which have to make distributions in each year a profit is made.
Companies are better suited for trading enterprises. However, company officers have rights and obligations towards the company and in certain circumstances may be held personally responsible for company liabilities.
Trusts should be established by way of a formal deed, and a trustee or trustees should be appointed to manage the affairs of the trust.
Trusts are generally not taxed, but subject to the terms of the trust, the income of a trust that is distributed to beneficiaries is taxed in the hands of the beneficiaries at the marginal rate of that beneficiary.
Trusts suffer from the fact that in order to avoid high tax rates, income in any year must be distributed so that a trust is not able to accumulate funds for future investment without relying on loans from beneficiaries. Further, trusts are not able to admit new partners/shareholders without the risk of triggering a CGT event. In the case of dutiable assets in the trust, there may be stamp duty consequences.
4. Partnerships and joint ventures
A partnership is not a separate legal entity but partners share the income and losses of the partnership. It is prudent to have a written agreement between partners to govern the relationship between the parties. Although it is not a legally-recognised entity, partners have substantial duties and obligations towards each other under the common law. The Partnership Act regulates the operation of partnerships.
5. Charities and not-for-profit entities
The ACNC (Australian Charities and Not-for-profits Commission) is the main regulator of Australian charities and non-profit organisations. These types of entities are prohibited from distributing profit to their members and have different reporting and governance obligations. However, these types of entities may be eligible for income tax exemption if endorsed by the Australian Taxation Office (ATO) and registered with the ACNC.
Certain types of entities such as community services, cultural and educational organisations do not require ATO endorsements to receive income tax exemption but self assess. However, there are strict requirements to be met for an organisation to receive this benefit.