[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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with the scheme’s constitution and the Corporations Act. Where a MIS has 20 or more retail clients, it must be registered with ASIC, and its
‘responsible entity’ must be a public company with at least three directors.
COMPARISON – PROS AND CONS OF EACH BUSINESS STRUCTURE
Structure
Advantages
Disadvantages
Sole Trader
• Simple and inexpensive to set up and operate • The owner retains control of the business and over its decision making. Therefore, the owner is able to exercise flexibility and speed in decision making. • Less regulatory requirements than there are for the other structures.
• No separate legal existence - the owner will be responsible for all debts and liabilities of the business. • Creditors have the right to claim against the personal assets of the owner. • Limited access to capital, if the business grows. • No continuity of existence – without a succession plan, the business will not survive if the initial owner dies. • No separate legal entity - partners are jointly and severally liable for the debts and obligations of the partnership. • Statutory limits on the number of partners allowed. • Difficulties can arise when there is a change in the partnership structure (e.g.: when a partner leaves the partnership).
Partnership
• Simple and relatively inexpensive to set up – a partnership can be set up informally by the parties carrying on business together with a view to a profit.
However, a written partnership agreement is recommended.
• Partners can combine their financial resources and expertise. • Tax is paid by the partners on their own tax returns and at their own marginal tax rates. • Tax losses of the partnership can be used to offset the partners’ personal tax liabilities. • Partnerships are under no obligation to make public disclosures of accounts and reports. • The partnership structure is often more flexible than other structures.
ILN Corporate Group – Establishing a Business Entity Series
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