The legal structure for your business is vitally important for success.
Getting the right legal structure for the right business purpose is fundamental for a number of reasons, but mainly we find that businesses do not incorporate fast enough and leave the business owner and their assets open to risk.
Having a separate legal entity set up to conduct business, which is distinct from the business owner or owners is a crucial set many small business owners forget.
If you’re a sole trader or partnership, you and the business are one and the same, so if the business was to come under fire, you personally are on the hook for the debts/liabilities of the business.
If the business is not a hobby, and involves any legal risk (for instance if you’re conducting business to business services), or if you have personal assets you wish to protect, then you should consider incorporating the business to a proprietary limited company (Pty Ltd) sooner rather than later, no matter what the financial advice you might receive about waiting for tax benefits to “kick-in” at certain revenue levels.
It’s not as expensive as it once was to incorporate to a Pty Ltd company, and in our view, if you’re going to become a company at some stage, you’re better off doing it sooner rather than later.
For around $900, you can have the business incorporated with an Australian Company Number (ACN), Australian Business Number (ABN), Tax File Number (TFN), and registered for Goods and Services Tax (GST). It’s a no-brainer if you’re planning on doing it anyway.
If you wait too long to incorporate, and only do so when your accountant tells you to, chances are you have an extremely busy business and it’s like moving at Christmas. You have to open new bank accounts, change all your subscriptions, insurance, transfer business names, domains, contracts, credit cards, new Xero accounts, transfer your intellectual property, trade marks, employment contracts …etc etc.
Trust me, you don’t want to do that when it’s a really busy business. You’re much better off doing this when things are starting to ramp up, not when business is exploding.