With the ever-changing market and demands of the consumer, it is important for businesses also to evolve in order to maintain their market position. The magnitude of change and its attributes might vary from business to business.
While for some it would be a change in work culture for others it might be a change In the entire business structure. In Australia, the culture of conversion from a sole proprietorship to a company is gaining a wide popularity. However, the following pointers need to be kept in mind before this decision of change in structure is made:
Impacts of conversion:
In every aspect of business and accounting, sole traders and companies are entirely different entities. In the eyes of law, the distinctions can be mainly on the basis of:
- Paperwork and bookkeeping methodologies
- Control of operations
- Debt liability
- Employment legislation
- Income assessment
When we talk about taxability, companies pay corporate tax at the rate of 27.5%, whereas the individual traders pay taxes based on their personal marginal rates. The amount of tax will vary and put the person into thought as to why he should consider converting into a company structure.
Reasons to convert the sole trader business into a company:
There could be several benefits one can reap by converting a sole proprietorship to a company form of organization. The main advantage is the protection the sole trader can provide to his personal assets. In the company form of organization, the personal assets of the owners cannot be applied for the payment of debts of the company, in normal cases. Also, the owner can save himself some tax as an individual because the company’s income is assessed as a separate entity. The entire income of the company is divided into the income of owners and company.
It should also be kept in mind that the growth opportunities for a company are much more than that for a sole trader. By involving co-owners in operation, the company can enjoy the benefits of growth and increased profits.
Before taking such a drastic step, it is important to analyze your business in the best possible manner. Its always better to seek professional advice from business advisors like Accountants in Werribee. They are a small group of Experts Tax Accountants who can help you clearly understand the distinctions between the various forms of business organizations.
Steps to be undertaken for conversion of sole trader business to a company:
Now when you have finally decided to convert your small proprietorship business into a company form of organization, it is important for you to understand the various implications this decision can have on you and your business.
As a director of the company, you need to undertake the responsibility of preventing the company from indulging in any unauthorized trading activities. It’s important to keep the interests of the company above your personal goals so as to protect your personal assets.
After this, you need to complete all legal formalities like applying for company name through ASIC, applying for new ABN, GST and other registrations. The entire process can be cumbersome!
In order to ensure smoothness in the process, it is important that you get the right guidance. If you wish to avoid any hassles while you plan your expansion process, then you should definitely visit Tax Experts Accountants of Werribee. Their expertise in the subject matter will help you understand the repercussions of your decision to convert from sole trader to company form of organization.
From tax liability to the cost and payroll structure, everything has to start as new from scratch, so why risk a new beginning? Start it right, so as to reach greater heights!