4 essentials for starting a business in Australia
When starting a business in Australia there are certain government registrations and licenses you need to know about. This article shares some basic info on ABN, GST, legal structure, business names, trademarks and more.
It’s not hard to start a business in Australia. There are currently more than two million small business operating in this country and the barrier to joining them is very low. If you’re thinking of getting in on the fun, here are four things you need to be across before starting a business in Australia.
1. Registration and licensing requirements
Starting a business in Australia requires an awareness of a number of important government registrations and licenses. You can start by running an online search with the Australian Business Licensing Service (ABLIS) to see registrations and licenses might be applicable to your business type and location. (For example, when I ran a search for ‘lawyer’ practising in ‘Melbourne’ I received no less than 55 results.) I’d suggest the key ones which would apply to nearly all businesses are:
- Australian Business Number (ABN) – unless you are engaged in a hobby rather than a business you should register for an ABN. Otherwise withholding tax at 49% will be applied to any payments you receive from other businesses. You will also be unable to register for GST until you have an ABN.
- Goods and Services Tax (GST) – the rule is that you must register for GST when you become aware your revenue will exceed $75,000 in one year. Below this amount registration is optional. Once you register you must complete Business Activity Statements (BAS) either monthly or quarterly. Whilst this reporting requirement might discourage startups to register for GST until it becomes necessary, remember that once you register for GST you can claim back all GST paid in your business formation expenses. Completing BAS statements also encourage you to establish financial discipline.
- Tax File Number (TFN) – All businesses require a TFN. You may use your personal TFN as a sole trader or your business will be required to apply for its own TFN in the case of a partnership, company or trust.
- Pay As You Go (PAYG) – You require this registration in order to withhold tax paid to employees and some contractors and businesses to assist them meet their own income tax liabilities.
You can apply for an ABN, GST, and PAYG registration yourself for free through the Australian Business Register (ABR). Application for a TFN on behalf of a business can also be made through the ABR however individuals and sole traders need to apply through the Australian Tax Office (ATO). Or if you prefer a Registered Tax Agent can take care of these for you.
"There are four common legal structures through which you can run a business in Australia."
2. Legal structures
There are four common legal structures through which you can run a business in Australia, each with their own legal formalities and taxation consequences.
- Sole Trader – This is the simplest and most inexpensive business structure to set up and run. It gives you complete control over assets and business decisions and still allows you to employ others. On the other hand you have unlimited personal liability for the business (you could be betting the farm) and opportunities for tax planning such as splitting income and losses are limited.
- Partnership – A partnership allows income, losses and control of a business to be shared amongst two or more individuals. Whilst not a necessity, I highly recommend a formal partnership agreement drawn up by a lawyer to document a number of important issues such as role, authority, financial contribution, dispute resolution, ending the partnership and so on. You need to carefully choose your partners as you are jointly liable for debts they incur and have unlimited personal liability.
- Company – To avoid betting the farm, a company is the superior vehicle through which to do business in Australia. It’s relativelyeasy to set up and creates a separate legal entity which can hold assets and be sued. It provides asset protection, the benefit of the corporate tax rate and allows significant capital raising ability.
- Trust – A trust exists where an individual or corporate entity (trustee) holds assets for the benefit of other individuals or entities (beneficiaries). Trusts provide asset protection and allow tax efficient distribution of assets and income to beneficiaries. On the other hand trusts are legally complex and require a formal trust deed to be drafted and executed.
3. Business names
Unless you plan to conduct your business under your own name without adding or changing anything, you are required to register a business name with the Australian Securities and Investments Commission (ASIC). This comes with a small registration fee and you can register for either one or three years. You must register your company name with ASIC but can also register other business names you intend to trade under. Registration however does not give you an exclusive right to use the name, you will also want to check existing trade mark and domain name registrations to ensure your name is not already in use.
4. Domain names and trademarks
To be entitled to a .com.au address you must be a commercial entity with an ABN or ACN (Australian Company Number). A number of accredited registrars and re-sellers can provide you a domain registration for a small fee and also offer web hosting services too. It is not necessary that you use your company or business name as your domain name but consider your choice carefully as it will become a important part of your online identity and brand.
Trademarks like words and logos are how you identify your product or service and distinguish it from competitors. You are not required to register a trademark but registration helps you demonstrate ownership and protect it from being used by others. Trademark applications take time and can be costly and professional legal assistance is recommended in this area.