Small business is a major driver of economic growth in Australia. According to Department of State and Regional Development recent research has shown that NSW has 96% of small business operated and employed more than 1 million people. There are three major types of business in Australia: sole traders, partnership, and company. A sole trader is owned by one individual. The basic advantage is the owner has the authority to make all the decisions. Also, it is simplify form of business organization to start and maintain all profit belong to sole trader.
Sole trader structure is not governed by law and regulations that can have more privacy on owner. When profits are generated or the threat of legal liability becomes a problem a business can adapt to one of two other businesses entitle. As well the business liabilities are personal liabilities and owner undertake the risk of the business for all assets owned, whether used in the business in the business or personally owned. On the other hand, sole traders are taxed like any other individual taxpayer. Sole traders must be aware that at the end of their first year of business they must pay not only their tax for the first year, may also provisional tax for the second year. Sole traders business is simple and inexpressive to set up, but owners will need an initial capital requirement to start the business.
Such as office equipment, utilities or any furniture and fittings. When the owners probably have very little spare capital that is a healthy way of organising a business at start up. A partnership is the most popular legal form of small business that two or more persons join together in the operation and management of a business venture. A partnership is not taxable entity; each partnership share of the partnership's income or loss on their tax return and additional capital is available to the business from the partners. On the other hand, when the partners are sharing decisions may lead to partnership dissolved and increased administration to account for separates interests. Likewise partnership also is the most simple form and cost very little.
The owner can purchase limited assets and material for operating their own business. Such as computer or any furniture. Unlike a sole trader or partnership, a company is a separate legal entity, which continues even if the owner dies, and is separate to each of the owner. A company have one or more persons to carry on a business.
The advantages of this business structure are: shareholders have limited liability for company debts and the company tax rate is lower than the personal income tax rate. Under the imputation system, when the company pay franked dividend to shareholders that can rise to tax credit, which allows the company to pass on tax benefits. In additional, the law require all companies must be registered with the ASIC and must report the financial record for ASIC. Thus that reduces the confidentiality and privacy of company's activities and financial results. The process of establishing and incorporate a company is more complex as they have strict legal requirement and regulations and costly than sole traders and partnership. Because they purchase more equipment, material, hire professional management staffs, publication fees and legal fees for operate their business.
Company structure is the easier way to raise capital from the shareholders because they know the business operating and financial records. In my interviewer, they are Pity's Gift Shop and Mother Chu's Vegetarian Kitchen. Pitty's gift shop is a crystal gift shop. The shop owners Mrs. E chose sole trader for her business structure. Due to bad experience with ex partner argument, she did not want to join with anyone and withhold all authority by herself to make decision. But she said the major disadvantage of the shop is the cost of operating.
In the nature of the Pitty's gift shop, swarovski crystal are the manly stock source rather than other brand crystal. Therefore they need to prepare a huge amount of money for buying these kind of stocks. The second interviewee is Mother Chu Vegetarian Kitchen who runs partnership business between mother and childs. Mrs Chu said partnership is most suited to business operated by family members. Because both of child shares capital, profit, skill, experience and risk with family member, also that can avoid disputes with other person. However, they have no need the partnership agreement and a bank statement in joint names is sufficient evidence for the tax office to recognise the existence of a partnership.
And Mother Chu said this is a Chinese culture which business is pass on from one generation to other. Despite small business is a major economic, the most of Australia banks avoid lending money for small business, even if the small business has a successful business. Unless business can show the good recorded of repayment of debt otherwise 70% of the security up front are must apply be lending. But that is impossible for small business to up front security. Furthermore all NSW small business must comply the new OHS rule from September 1 that if a person injury in workplace which employers take all responsible for visitors or employees.
Likewise, the legislation requires consult with employees on health and safety. But basic on partnership structure that partner's can not employed himself or herself. This mans they cannot be covered by work cover in the event of a workplace accident. Thus that will increase the business operating cost for owner. At my option, operating as a partnership is best suited to a person who does not have any operate business experience. On the other hand, partnership is simple and low cost to operate.
Moreover, partnership can claim deduction from the business expense such as rent, depreciation and car expense. As well, partnership can contribute the managerial skills and ability to raise funds for the business. Another advantage of partnership that would share the risk with partners and one partner can cover another partner's absence in times of sickness or holiday, which probably explains why I choose partnership. Finally, when owners choose business structure that will depend on the circumstance of the business, such as the type of business they operate, financial need and availability of fund or taxation considerations and it can also often depend on the stage of development of the business life cycle.