How business structure works?

Discussion in 'Business Accounting, Tax & Legal' started by ankit3695, 16th Aug, 2019.

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  1. ankit3695

    ankit3695 Member

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    16th Aug, 2019
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    Hi Guys,

    I am looking to buy a business soon and its irritating that they do not teach business skills in schools, as I feel like I'm diving into dark water and have no idea whats underneath.

    Anyway I currently work as a sole trader under an ABN, but would need to now work with an ACN, as I will become the owner of a business. How does this work? Someone told me they have 3 companies to manage their one business, hence they have 3 ACNs. Who manages these companies and am I responsible for applying for the ACNs or does an accountant help me with that?

    If someone can please explain how the business structure works, it'd be very much appreciated!

    Ankit
     
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    Sydney
    You typically only need one business - hence one ACN. Your accountant can set this up for you.

    Generally you would be the shareholder and the sole director. You can pay yourself a salary as a director, or you can pay yourself dividends as a shareholder - or you can do both!

    You would only need multiple businesses if your operation is complex or you need separation of various parts of your business (eg manufacturing vs shipping vs consulting). Most small businesses operate under a single company structure with one ABN.

    Note that being the director of a company increases your personal liability risks - it's not something to take on lightly without understanding the nature of those risks. You might also want to consider getting advice on asset protection and perhaps consider using a trust to hold your assets.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You need some specific advice. A business is not an entity or a legal person, but what one does.

    A company is a separate legal person to its directors and shareholders so it limits liability. But it has to be set up correctly. if you have an existing business owned and operated by yourself you will need to get this into a company. This needs to be done in a way which minimises tax but also avoids the claw back provisions.

    The business will have different components such as good will, staff, and assets. These can be segregated into different companies so if one goes bad the other companies are no dragged down. For example if a customer sues for negligence the trading company may go down but the company holding the assets may not be effected.

    But all this costs money and administration, so it would depend on how big the business is and how big you think it will get..

    You will need legal advice on who should be the directors of the various companies and whether these companies should be acting as trustees or not. Also legal advice needed on who the shareholders should be. Forget accountants as they cannot advise on the corporations act, asset protection or trust law - but they can advise on tax if they are tax agents.
     
  4. ankit3695

    ankit3695 Member

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    16th Aug, 2019
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    Location:
    Sydney
    Thanks for the replies. Very helpful responses. I'm getting advise from both my accountant and a financial advisor as well as my lawyer. I have moved to point of setting up a company and I'm the Director. Exciting times but also bit scary.
     

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