Today we continue our “Structure” series, focussing on partnerships.

A partnership can be carried on by two or more individuals or entities – a partnership occurs when the business is carried on by the individuals or entities together, with the intention to share profits.

In most cases the profits are split equally, however it is possible to come to an agreement for a disproportionate split of income (ie: where one partner works in the business more than the others, they should be remunerated accordingly – see the reference to wages below).

Of importance to note is that a partnership, while a separate entity, does not pay income tax in its own right.  A partnership must distribute its income (or loss) according to any agreement and it is the partner who is responsible for payment of any income tax.

The benefits of operating as a partnership include:

• they are easy to set up, the only registrations required are for a Tax File Number, Australian Business Number and Business Name (if applicable) – although a formal agreement is recommended
• as it is the partners who pay income tax, there is the possibility of “splitting” income within a household
• management expertise may be increased where there is more than one individual, as it is likely each will have their own areas of speciality
• it is easier to take annual leave or sick leave when there is a partner to rely on, and;
• pooling financial resources and increased borrowing power can assist the business to grow

Disadvantages of operating as a partnership include:

• each partner in a partnership has unlimited liability
• partnerships often change as a result of death or bankruptcy which can cause disruption to the business and may have capital gains tax consequences
• there is a danger of disagreement between the partners, and;
• each partner is an “agent” of the partnership and can act on behalf of the partnership without the agreement of the other partners

One area that often confuses people when discussing partnerships is that of wages.  A partnership can pay wages to staff who are not a partner in the partnership, but since individuals cannot employ themselves, a partnership cannot pay wages to a partner – they get their remuneration through the distribution of profits only.

If you’d like to discuss your partnership business, please complete the Contact page.

Regards

We’re taking a break from talks about structure today, to reflect on an organisation I was recently introduced to.

Earlier this week I attended our local monthly meeting of BPW (you can read about them here), where we were lucky to hear from the lovely ladies at Days For Girls from Geelong.

As a woman, can you imagine not having access to sanitary supplies and how that might impact on your day to day life?

Throughout the world there are thousands of girls and women who miss days of school and days of work as a direct result of their lack of accessible sanitary supplies.

In some cases these sanitary supplies are days of travel away or simply far too expensive – often, with only a small amount of money available, there is a decision to be made between purchasing sanitary supplies or providing food for family members…that’s not really a choice is it?

Days For Girls aims to overcome this epidemic!  Their MISSION is “Creating a more dignified, free and educated world through access to lasting feminine hygiene solutions” and their VISION is to have “Every girl and woman in the world with ready feasible access to quality sustainable hygiene & health education by 2022”

The Days For Girls charity provides sanitary hygiene kits which are washable and reusable, with most lasting up to 3 years!  The kits are prepared to very strict guidelines by a team of dedicated volunteers – but as usual, there’s always room for more help!

The impact of these kits has produced some alarming figures regarding retention rates of girls in school, their education levels and their likelihood of obtaining employment – all of which has the potential to create a brighter future…

For more information, and to get involved, please refer to their website.

Regards

Following on from this weeks earlier post regarding your structure, today we are discussing the concept of “sole trader”.

A sole trader refers to an individual who runs a business operation.  It is the individual who holds the Australian Business Number (ABN) and the operation may be performed in the individual’s own name, or a registered business name (ie: Joe Smith or Joe Smith trading as Joe’s Pie Shop).

The benefits of operating as a sole trader include:

• they are easy and cost effective to set up as there are no specific laws relating to the formation of a sole trader
• they are simple to wind up as there are few formalities other than paying your debts and notifying stakeholders and government departments
• the owner has freedom in decision making
• all profits belong to the owner
• sole traders are often known for having direct contact with clients and customers which creates a sense of personal service

Disadvantages of operating as a sole trader include:

•  while the owner takes all profits of the business, they also bear the losses and there is no distinction between business and private assets in terms of liability
• operating as a sole trader may lead to limited management and technical expertise
• raising capital can be difficult, good planning and budgeting is important
• all profits are taxed in the name of the owner which may be ineffective depending on the level of income

If you’d like to discuss your sole trader business, please complete the Contact page.

Regards

I find it ironic that I can go for a long time without touching on a particular subject…and then receive three enquiries in the same week regarding the exact same topic!

The topic of the week just gone was “structure”.

Each person in business must have a “trading entity”, and each investor must have an “investment vehicle”…but what do we mean by entity and vehicle?

Essentially, these terms all refer to the structure under which you operate.  There are a number of different legal structures that can be used for business or investment operations and the type of entity you use will depend on a number of factors.

It is not uncommon for people to refer to their “company”, when in fact they are talking about their “business name”, as such it is important to be 100% confident of the structure you operate within, as it impacts on your tax result, your liability and also ownership of assets!

The type of structures available for business and investment purposes include:

• sole trader
• partnership
• company
• trust
• superannuation fund
• not for profit

Over the coming weeks I will be taking a more detailed look at each of these – but please, I do ask you to remember that any information provided in this space is general in nature and should only be used in conjunction with personalised advice from your accountant.

Stay tuned…

Regards