After working with a large number of medical professionals, we have found that one of the most common questions we hear is 'how should I set up my business structure?'
A lot of medical professionals often start working as contractors, go into business for themselves or will start their own practices either on their own or with one or more partners. All of these situations warrant the question as to what structure would best suit the position you are about to enter into.
In this article we'll look at the different business structures available to Australian businesses, being sole trader, partnership, company and trust, and when each of these structures may be appropriate.
The Different Business Structures:
Sole Trader
What is it?
A sole trader is the most basic business structure that can be utilised in running a business. Setting yourself up as a sole trader simply involves applying for an Australian Business Number (ABN) in your personal name, with the option to register a business name with ASIC as well if you desire. Under this structure, all business income and expenses are recorded directly in your personal tax return and are taxed at the marginal tax rates, the same as a normal salary and wage type income would be taxed.
Advantages
Costs very little to establish and to cover ongoing compliance costs.
The sole trader has complete control over the business and any business decisions.
The sole trader can withdraw any profits from the business activity as and when they like.
Disadvantages
The ability to grow is difficult - can't bring in partners, raise capital etc.
The structure offers no asset protection, so if a legal issue were to arise, the sole trader's personal assets could be at risk.
When is and isn't the structure appropriate?
A sole trader structure is most appropriate for someone who might be looking to start work as a contractor for one or more practices in their own capacity or who might be looking to work for themselves in their own practice as the sole practitioner.
This is because when you're starting out, saving costs is usually a focus, you would be looking to utilise any profits earnt, you may not have many assets to your name and there is generally a lower legal risk due to lower levels of activity.
The structure becomes less appropriate as you start to grow, build up a personal asset portfolio and the risk of legal activity increases. Therefore, there often comes a point where a sole trader may need to consider restructuring their business to be more appropriate for its activity - an accountant can help you in this space if you think a change may be necessary.
Partnership
Company
Trust
As you can see, there are quite a few considerations that need to go into choosing the right business structure for your practice or business.
The best way to ensure you are getting the right outcome from the start is by speaking with an accountant and informing them of your situation, so that you can work together to determine what would be the most appropriate business structure for you now, and in the future.
If you wish to enquire with myself or my business partner Ben for assistance with choosing the right structure for your new business or to review whether your current structure is appropriate, you may do so from the contact page of the JET Accounting & Advisory website. You can also contact us directly by emailing enquiries@jetaa.com.au.
Written by Jayden Hamer
