Home – New Forums Starting your journey Anyone gone from a company to a partnership or JV?

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  • #978710
    Adam@TypeShape
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    Heya folks, I’ve gone through the archives here and although there’s awesome info on all business setups, I couldn’t find anything on going from a company, to a partnership or JV.

    Essentially we’ve been 3 guys with all equal shares in a web design company, but recently gone to 2 as one of the directors has had to move on…we’ve had some real bad months financially and he needs a solid income ( haven’t formally done company paper work yet which is why we are looking around ).

    Anyway, it seems really unnecessary to be running a company now, BAS, taxes, paying accountants, time required etc is stacking up big time….we are far from accountants, and the guy that’s left looked after much of it.

    So I guess my question is, has anyone gone from a company to a partnership or JV, and if so, what do you recommend? Did you keep your company names? Best way to manage wages & outgoings etc?

    BTW we don’t have any debts or such, a few outgoings but all non contractual.

    Thanks heaps folks, any help is very much appreciated as we are great designers, crappy accountants: )

    #1108977
    JacquiPryor
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    Anyway, it seems really unnecessary to be running a company now, BAS, taxes, paying accountants, time required etc is stacking up big time…

    Hi Adam,

    Just to clarify – the need to attend to a BAS, pay taxes etc is not because you are operating as a company. These things may still apply whether you change your structure or not. A BAS is required when you are registered for GST, to report to the ATO on the GST paid & collected – you must be registered for GST when you earn more than 75K. So, if the company earns more than this it is registered for GST; if you change to a Partnership, and the partnership earns more than then the partnership still needs to be registered for GST and report that to the ATO with the BAS. I would suggest as a partnership or JV structure you would still need to employ and pay an accountant from time to time.

    My understanding is that, from a registration perspective, you don’t “change” from a Company to a Parternship – they are two different types of structures/entities.. so, you would effectively start the partnership and de-register the company when appropriate. The Partnership would need its own ABN, which would be different to the one you have as a company – and, ideally would notify customers/suppliers of the changes, inclusive of advising of the new/correct ABN etc.

    You wouldn’t necessarily “keep” your company name either – you might choose to use the same name as your partnership name rather. You would still need to keep proper records for the new structured business, and pay taxes where required etc.

    In short, I am not sure that restructuring as a partnership is going to be less work/time involved than continuing the company. There might be personal benefits in so far as your incomes/taxes are concerned, but this would likely depend on the level of turnover that the entity has.

    As to the ‘wages’ question etc, I am not familiar enough to reply but hopefully someone will be along soon to answer. I understand that the partnership would distribution funds to each of you, which would then form part of your income for the year – ultimately determining how much tax is paid etc but am not certain on this point.

    #1108978
    Kennethti
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    Adam@TypeShape, post: 121088 wrote:
    Heya folks, I’ve gone through the archives here and although there’s awesome info on all business setups, I couldn’t find anything on going from a company, to a partnership or JV.

    Essentially we’ve been 3 guys with all equal shares in a web design company, but recently gone to 2 as one of the directors has had to move on…we’ve had some real bad months financially and he needs a solid income ( haven’t formally done company paper work yet which is why we are looking around ).

    Anyway, it seems really unnecessary to be running a company now, BAS, taxes, paying accountants, time required etc is stacking up big time….we are far from accountants, and the guy that’s left looked after much of it.

    So I guess my question is, has anyone gone from a company to a partnership or JV, and if so, what do you recommend? Did you keep your company names? Best way to manage wages & outgoings etc?

    BTW we don’t have any debts or such, a few outgoings but all non contractual.

    Thanks heaps folks, any help is very much appreciated as we are great designers, crappy accountants: )

    You need to think long and hard about this and whether it will still work out for you. Remember – a company is technically a separate entity from an individual. To go from a company structure to a partnership structure means that you will be splitting up the company, liquidating the company, and transferring the business and its assets to the individual shareholders.

    In terms of tax, you will incur individual rates of tax. As you are carrying on a business, you still will have to lodge Business Activity Statements. The transfer of the business will also likely incur stamp duty. There’s also questions about liability – going to a partnership means that you will now incur liability jointly, and this liability is a personal liability, which means that in the worst case scenario, your debtors may have a claim on your personal assets.

    A partnership also requires a partnership agreement to be drafted. I can’t stress how important this is as it sets out what many things in relation to how the partnership should be run.

    All in all – think hard about this. Consult your accountant. If you don’t have one, engage one now. Best to get proper advice in relation to this matter.

    #1108979
    victorng
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    Adam@TypeShape, post: 121088 wrote:
    Anyway, it seems really unnecessary to be running a company now, BAS, taxes, paying accountants, time required etc is stacking up big time….we are far from accountants, and the guy that’s left looked after much of it.

    If you’re still going to be running the business, you’ll still need to pay tax, do your BAS and pay accountants. The fact that one of your ‘partners’ has left doesn’t really affect this – unless he’s taken most of the business with him.

    #1108980
    Adam@TypeShape
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    JacquiPryor, post: 121097 wrote:
    Just to clarify – the need to attend to a BAS, pay taxes etc is not because you are operating as a company. These things may still apply whether you change your structure or not. A BAS is required when you are registered for GST, to report to the ATO on the GST paid & collected – you must be registered for GST when you earn more than 75K. So, if the company earns more than this it is registered for GST; if you change to a Partnership, and the partnership earns more than then the partnership still needs to be registered for GST and report that to the ATO with the BAS.

    Hi Jacqui, Kenneth and Victor, thanks so much for your awesome responses and help, it is very kindly appreciated!!

    Jacqui do you know if that is 75k per partner, or the partnership in total is 75k? I am really having trouble finding a clear answer to this one online.

    I guess ideally, and as a web based consultancy business that are not asset laden, or have debts, if the partnership could earn 150k and avoid GST and BAS paperwork, this would be so much more practical for us.

    If not and we are capped at 75k in total for both of us, then there’s no point changing unless we can have multiple partnerships, or if there’s another structure that allows this & worth looking into?

    Thanks again, any website design questions you know who to ask: )

    #1108981
    Paul Wineberg
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    Adam,

    The turnover is based on the business not per partners, meaning when you turn over $75K you will need to register for GST, regardless of the number of partners.

    I am an accountant, and I am happy to have a chat to you regarding structures, GST etc. This will be at no cost to you.

    Please let me know if you would like to discuss structuring further, and I will send through my contact details to you.

    Kind Regards,

    Paul

    #1108982
    Kennethti
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    Adam@TypeShape, post: 121134 wrote:
    Hi Jacqui, Kenneth and Victor, thanks so much for your awesome responses and help, it is very kindly appreciated!!

    Jacqui do you know if that is 75k per partner, or the partnership in total is 75k? I am really having trouble finding a clear answer to this one online.

    I guess ideally, and as a web based consultancy business that are not asset laden, or have debts, if the partnership could earn 150k and avoid GST and BAS paperwork, this would be so much more practical for us.

    If not and we are capped at 75k in total for both of us, then there’s no point changing unless we can have multiple partnerships, or if there’s another structure that allows this & worth looking into?

    Thanks again, any website design questions you know who to ask: )

    I am not an accountant – you should speak to one – but I believe it’s $75k for the partnership.

    #1108983
    JacquiPryor
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    Hi Adam,

    I think you should take Paul up on his offer to have a chat. My understanding is that it would be per ABN… A partnership would have 1 ABN.

    #1108984
    Avatar Consulting
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    Changing horses midrace

    Hi

    All the earlier points are on the money so I will only add the thought that seems to be missing here.

    It will cost a significant amount of money to make all these changes and it will consume time from both remaining directors. My question is that your company sounds like it is already struggling financially and in its management so any time & resources away from earning revenue will only put the business further into the hole and end up closing completely.

    You need to look at ways to increase sales to have the funds necessary to make the changes in any case. No matter what structure you end up in, the lack of sufficient sales still needs to be addressed.

    I am not sure why the focus is on avoiding GST as it appears that your business is not generating enough revenue for this to be an important cost saving area. Your product has low or no cost of goods and few contractual obligations so where is the money going, if not creating more sales?

    #1108985
    Adam@TypeShape
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    Re: Changing horses midrace

    Avatar Consulting, post: 121238 wrote:
    Hi

    All the earlier points are on the money so I will only add the thought that seems to be missing here.

    It will cost a significant amount of money to make all these changes and it will consume time from both remaining directors. My question is that your company sounds like it is already struggling financially and in its management so any time & resources away from earning revenue will only put the business further into the hole and end up closing completely.

    You need to look at ways to increase sales to have the funds necessary to make the changes in any case. No matter what structure you end up in, the lack of sufficient sales still needs to be addressed.

    I am not sure why the focus is on avoiding GST as it appears that your business is not generating enough revenue for this to be an important cost saving area. Your product has low or no cost of goods and few contractual obligations so where is the money going, if not creating more sales?

    Yup this makes total sense, love the changing horse line: )

    One thing that happened with a director leaving, is that we lost 30% of our skill sets, actually more like 50%, he was an amazing developer and looked after much of the accounts!

    So we are moving our focus a little bit which is starting to pay off nicely, and it’s why we are looking at the accounting / biz setup. I’m also new on the accounts and trying to get it to a point that I can manage easily…no gst would help: )

    But after the fantastic support and advice here ( including yours ) we are going to remain a company and look at updating our online accounting software and potentially accountancy firm. The hosted software we use has a very clunky UI and frustrating to use, well at least for designers: )

    We are checking our Xero and it looks great…any software recommendations for non-accountant types?

    Thanks again everyone for the awesome support, spending much more time on this forum now and hopefully can help folks in non-accounting areas!!

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