Home – New Forums Money matters 3 Businesses, 1 ABN, Sole Trader – when to change to Company?

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  • #983038
    Webedge
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    Hi,

    Just looking for some advice on changing to a company after 5 years.

    Currently run 3 sets of books for 3 different businesses, all under the 1 ABN (I’m a sole trader), and it is all becoming quite difficult.

    1 business has extremely high turnover but also a lot of expenses (stock purchasing, advertising, etc) so it is affecting my overall turnover.

    I’m wondering at what point it would be beneficial to change to a company structure?

    #1140258
    CindyK
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    Hi,

    Because of the complexities and personal nature of the information required to provide a good answer, you need to sit down with a good Accountant and work through all the variables to really have the right answer for you. For example, high turnover means many things to many people, but you wouldn’t want to disclose that here. For some $100k is a high turnover, for other SME’s $5m is a high turnover – usually depends on industry, product, size, market etc. Also, you would be best to have someone discuss with you the outcome of splitting the businesses and whether they are profitable in the individual form or only when all run together.

    Some of the general help you could ask for on here would be about asset protection, for the different types of company you could choose. The changes to your software and accounting by splitting the businesses. Feedback on other peoples experience with changing from sole trader to company. And the ‘how-to’ when you know which path you are going down.

    With the accounting/software side – you will need completely seperate business bank accounts for a company. You would need to keep funds from the other two businesses separate. This means new company software files (if you use software). Most people need to create divisions in their filing – so they are all easily pulled apart. Companies need to be more accountable (in general) to the government and there are different rules that apply. A good time to change means that you will have to have investigate that whole side of the businesses to make sure it is smooth and doesn’t give you a tax time nightmare. Usually it is advisable then to change over (if you decide to) at the end of a tax year or at the end of a tax quarter (if a year is too long away).

    Sounds like the businesses are doing well though, congratulations!

    #1140259
    PRO
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    I am a big fan of using trusts for both income distribution and asset protection.

    For example a company offers asset protection in one direction. It limits the liability of the share holders to the value of their shares. However a company does not offer asset protection from the shareholder’s creditors.

    If you need to trade in a straight company you can use a discretionary trust to hold the shares so the company is protected from your creditors, need to ensure the trust does nothing other than hold the shares.

    Good luck

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