Business Ownership Types and Their Implications

Sole Trader

A single person operating a business under their own name.

Unlimited Liability (Sole Trader)

The owner is personally liable for all debts and damages owned by the business. All contracts and assets are in the owner's name.

Taxation (Sole Trader)

Profits of the business are taxable income of the owner, in his or her Individual Tax Return.

Ownership (Sole Trader)

The business can run in his or her own name or a business name can be registered.

Advantages of Sole Trader

The owner has full control, keeps all profits, and it is easy to set up.

Disadvantages of Sole Trader

Unlimited liability, no-one to share the workload, and all losses fall on the owner.

Partnership

A type of business ownership where two or more people fully operate the business in order to make a profit.

Unlimited Liability (Partnership)

Partners are jointly and severally liable for the debts of the Partnership.

Taxation (Partnership)

Profits of the partnership are distributed to each partner, based on the Partnership Agreement, to their individual tax returns.

Ownership (Partnership)

Contracts entered into by one partner are binding on all partners. Maximum of twenty partners for a general partnership.

Advantages of Partnership

Easy to establish, shared workload, shared expertise, more ability to gain capital

Disadvantages of Partnership

Unlimited Liability, disagreements between partners over decisions, and rules must be set in place for partners leaving.

Small Proprietary Company

A separate legal entity run by director/s and owned by shareholders. (Pty Ltd)

Liability (Small Proprietary Company)

Liability of the owner (shareholder) is limited to the unpaid amount of shares owned in the company.

Taxation (Small Proprietary Company)

A company produces its own tax return and pays a company tax rate (27.5%).

Ownership (Small Proprietary Company)

No more than fifty shareholders.

Advantages of Small Proprietary Company

Limited liability and person can sell their shares if they want to leave (easy transfer of ownership)

Disadvantages of Small Proprietary Company

Expensive to set up, less say in the running of the business, profits are shared amongst more owners, and must operate within the Corporations Act.

Not for Profit Organisation

Organisation is not operating for the profit or gain of its individual members.

Liability (Not for Profit Organisation)

An incorporated organisation provides financial protection by limiting the liability of its members to outstanding membership fees. An unincorporated does not.

Taxation (Not for Profit Organisation)

If approved by the ATO, non-profit organisations can be exempt from income tax.

Ownership (Not for Profit Organisation)

Not for profit organisations are either unincorporated or incorporated associations.

Advantages of Not for Profit Organisation

Inexpensive to incorporate, few formalities and low compliance requirements, and may be eligible to tax concessions.

Disadvantages of Not for Profit Organisation

Limited to operating in the state of incorporation, and not closely monitored or regulated.

Franchise

Franchising is a business arrangement where the franchisor licenses the business model to franchisees in return for ongoing fees or royalties.

Liability (Franchise)

Liability for debts depends upon the form of business organisation that owns the franchise.

Taxation (Franchise)

Tax liability depends upon the form of business that owns it.

Ownership (Franchise)

The franchisee owns the franchise. They may sell the franchise to another person but there may be conditions set by the franchisor.

Advantages of Franchises

A well established brand and product or service, franchisor offers management training and assistance, and established operating procedures.

Disadvantages of Franchises

Franchisees have to operate the business according to the franchisors' procedures, less autonomy in business decisions, and ongoing cost of payments to the franchisor.

What is the difference between unincorporated and incorporated?

Unincorporated is not a spectate legal entity to the embers associated with it (owner is responsible?) incorporated means an association that is a seperate legal entity (can continue even if change of membership)