I look after the paperwork for my husband’s business…. He is a sole trader but the business is getting bigger and people have suggested we should structure the business as a company. I would like to ask about the benefits of changing and what accounting and tax issues do we have to consider, thank you?
How much time have you got???? hahahaha
here is a snapshot for you:
1: asset protection: if the company has debts the company gets sued, not you. This protects your personal assets from business risk
2: company tax rate: 27.5% tax rate for small business entities, which is lower than most peoples' marginal tax rate
1: cost: higher accouting fees
2: complexity: issues with director loans can cost you heaps to sort out
3: super: any wages paid to you MUST include super as an employee (this is not ALL bad, everyone can use more super)
4: workers comp: the company MUST have a workers comp policy on wages paid to everyone, including the owner
for the vast majority of people tax savings alone are not enough to justify setting up a company. HOWEVER for the vast majority of people the asset protection you get out of using a company is more than enough to justify using a company.
there are lots of other issues that need to be considered too, so you will definitely need help.
get a good accountant to advise you and help you to set the company up if you decide to go that way
what industry is he in?
There are all sorts of reasons someone would incorporate a company for their business, just a couple are:
lower tax rates
Saleability of the business
If I can recommend, you might like to speak to a lawyer, and possibly a tax planner. There are lots of reasons I set my businesses (including the law firms) up in company structures, but to be fair to you, until someone knows what you guys do, how big the business is now, where you want to go in the future etc, then anyone giving advice would probably be doing you a dis-service.
You could call Patrick Earl on 1 3 0 0 A D S L A W and mention that I referred you (he's a senior Commercial Litigator at one of my firms and I'll let him know you'll be calling...)
I hope that helps at least a little... If you need a Tax Law expert, I have a personal friend, Tony (and he's a great lawyer too) with Sydney and Melbourne offices I can also refer you to (no commercial connection to Tony).
With warm regards
Speak to your accountant - if you don't already have one, that is the first thing you need to change.
If your husbands business employs staff, his personal assets are at risk of the errors/stupidity of employees.
You should also ask about a trust as part of the business structure. These can provide great flexibility with profits, as part of tax minimisation, as well as having the asset protection with the company.
Getting the right advice will cost money, but may save more than just money in the long term.