How do I set-up a business?
- Determine the business structure
- Obtain finance
- Register a business name
- Apply for a Tax File Number
- Apply for an Australian Business Number
- Register for GST
- Register for PAYG withholding tax
- Register for fringe benefits tax
- Open a bank account
1) Determine the business structure
A business can be structured in various ways including operating as a sole trader, a partnership, a trust and a company. The business structure you choose should align with your commercial goals and objectives. There are also options within these structures, such as the limited liability partnership, hybrid trust and joint venture. Consider the structures that have the potential to suit your business requirements.
When choosing a business structure consider its ability to:
- protect your personal and business assets
- reduce taxation
- minimise start up costs
- raise capital and finance
- obtain insurance
- move from one business structure to another
- transfer your ownership stake or take up more ownership
- add or remove partners
- make profit
You should keep the structure simple. Conduct your business through a structure that you can control and understand. If it is too complex it can become difficult to manage. Research the potential advantages and disadvantages of each business structure before making a final decision.
2) Obtain finance
You will need to decide how to finance your new business venture. You could borrow from a bank, take on a joint venture partner, attract shareholders or even approach a wealthy relative.
Many entrepreneurs have difficulty raising finance through traditional sources. Meeting the requirements of a bank isn’t easy. New businesses have an inherently higher risk than established businesses, and future cash flow is not certain. You will need collateral in the form of cash or assets to obtain finance from a bank.
If you are using a company structure for your business, you will need to arrange for the issue of shares. Having a mutually agreeable balance of power between the investor and the entrepreneur is the key to a successful financing relationship. You will need to determine the level of decision-making, if any, that the investors will have.
It is essential that all these financial relationships are well-documented. You should always complete all the relevant legal and financial documentation.
3) Register a business name
Search the National Names Index to see if a business name already exists. You will need to register a business name to operate your business unless you intend to conduct your business under your, or your partner’s, first name and surname, or initials and surname. You need to register your business name with the Department of Fair Trading in each state or territory in which you intend to operate. You can reserve a company name by submitting Form 410 to the Australian Securities and Investments Commission (ASIC). You can find Form 410 at the ASIC website (www.asic.gov.au). The fee for registering a business name is different in each state. If you want exclusive use of your business name throughout Australia, you will need to register a trademark.
The registration of a company name is different to a business name. Once your company name is registered, you have exclusive rights to the name throughout Australia. Your company doesn’t need to register its business name with the Department of Fair Trading unless the company owns or runs a business with a different name.
4) Apply for a Tax File Number
Partnerships, companies and trusts all require a tax file number. You can apply for a tax file number at the Australian Taxation Office website (www.ato.gov.au). You can also apply for a tax file number at the Australian Business Register website (www.abr.gov.au). The Australian Taxation Office will notify you of the tax file number in writing. Supply the tax file number to your financial institutions so they don’t withhold payments.
Tip: If you need a Tax File Number, apply for an Australian Business Number, register for GST, register for PAYG withholding tax and register for fringe benefits tax, all at the same time using the Australian Business Register website (www.abr.gov.au).
5) Apply for an Australian Business Number
Apply for an Australian Business Number (ABN) at the Australian Business Register website. The ABN can be issued to you either immediately or within seven days. It will be issued to you immediately when lodging the required form at the Australian Business Register website otherwise the Australian Taxation Office will notify you of the ABN in writing within seven days. The ABN registration can be backdated.
6) Register for GST
You can register for GST when you are registering an ABN. The rules for GST registration are based on turnover. When a business group turns over more than $75,000 it must register for GST. A business may voluntarily register for GST if it turns over less than $75,000. You will need to determine if you should register for GST as not all entities need to be registered. Your accountant can register your entity for GST by updating your file at the Australian Taxation Office.
7) Register for PAYG withholding tax
Register for Pay As You Go withholding tax on the same form as the ABN registration at the Australian Business Register website. PAYG withholding tax is the tax on salaries and wages that you are subject to as an employee or company director. PAYG withholding tax is also charged to recipients who haven’t provided an ABN. It is reported and remitted to the Australian Taxation Office in the business activity statement. You need to determine if you need to be registered.
8) Register for fringe benefits tax
When setting up a business you may need to register for fringe benefits tax. You can apply at the same time as you register your ABN. A fringe benefit is a non-cash benefit provided by employers to their employees (and associates) in respect of employment such as motor vehicles, loans and property. The employer pays the equivalent tax on the benefiting good or service that the employee would have paid had they received it in the form of wages. Fringe benefits tax is remitted to the Australian Taxation Office in the business activity statement.
9) Open a bank account
The account signatories will need to satisfy the 100-point identification check. If you are setting-up a company, your financial institution will need the Certificate of Registration to open a bank account. The Certificate of Registration is issued by ASIC upon registration. It is convenient to streamline your business through one main bank account. Keep the business bank account separate to your personal savings or cheque account. You can open a separate bank account to help save for tax payments. Consider a high interest bearing account to store excess cash flow. You may require credit cards and a bank overdraft facility to fund immediate business expenses.
Case study: Maurice Vasin & Associates design a business structure for a client in the property development industry.
Our client is an investor in the property and construction industry and came to us with plans to build a block of units in Sydney’s eastern suburbs. There were five participants involved in the project and all participants intended to pool their funds to finance the build.
We were instructed to establish an appropriate business structure for the client. Simplicity was important due to the number of participants. The client also wanted to be able to take advantage of the capital gains tax discount on the sale of the properties. Capital gains tax is the tax paid on certain assets, such as property, that increase in value over time.
We decided a unit trust was the structure that would enable our client to achieve their objective of minimising their taxable income whilst generating a capital gain. We registered the tax file number and Australian Business Number for the unit trust. We also registered for GST.
Each participant became a unitholder. The unit trust is an entity where each unitholder is entitled to a proportion of income and capital distributions based on their proportion of unit holdings. To minimise tax, the income of the unit trust is distributed to entities such as discretionary trusts and individuals which offer further tax advantages. The discretionary trusts are controlled by the same people that control the unit trust. We set up a company as trustee for the unit trust. All the participants became directors and shareholders of the trustee company. This way each participant remains in effective control and the beneficiaries have equitable ownership of the trust property.
Maurice Vasin & Associates prepare the financial statements, business activity statements, and tax returns for the unit trust, and the trustee company. Now our client is free to look for other investments whilst we take care of their accounting and taxation matters.