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August 28, 2015 at 5:08 am #992696GavinJMember
- Total posts: 2
I have a query in relation to the business structure for an online business that I will be starting shortly.
The online business will provide online invitation services (similar to eVite). The revenue model is based on high volumes of low value transactions (approx. $1 per transaction).
The business will be operated from Australia (i.e. that is where I live), the servers hosted offshore, and the customers can be from anywhere in the world (initial target market is the US).
All transactions will be completed using PayPal.
The question I have is around structure. I am planning to initially setup and trader as sole trader from day 1, and then after a few months if I believe the business is going to be successful I would like to setup a company & trust structure (i.e. a PTY LTD company for the online business to trade as, and a trust for which myself and my wife will be beneficiaries)
Are there any issues with moving from a sole trader business structure to a trust once the business has been established?
I do intend to seek advice from an accountant, however I would prefer to first establish if the business model is viable before I invest heavily in professional fees, structure establishment, etc – hence the idea of starting as a sole trader initially.
ThanksAugust 28, 2015 at 6:45 am #1187601Dave Gillen – FS ConciergeKeymaster
- Total posts: 2,549
Sounds about right to me. That’ll keep your costs low while you figure out if your business has any legs.
Welcome to Flying Solo by the way! Glad to have you aboard.
DaveDave Gillen - Client Acquisition | Brisbane | (07) 3180 0288August 28, 2015 at 9:14 am #1187602NickKaroMember
- Total posts: 226
Some initial thoughts on operating as a sole trader and then switching to a company/trust structure:
If the business has legs in a few months, it’ll likely have value, hence transferring in the future may trigger a capital gain (and a roll-over may or may not apply depending on the ultimate ownership structure – likely not if the company is owned by a discretionary trust or a unit trust with more than you as the holder of units).
Depending on what the business is comprised of and owns by the time of transfer, it can get messy (and costly) to transfer certain assets to a new structure.
There is less risk of the arrangement being considered as tax driven if set-up in a particular way in the beginning, rather than post restructure.
Based on my experience in the area, my suggestion would be to set it up right to begin with and, if for whatever reason the business does not take off as expected, use the company/trust for other purposes or business in the future.
Best of luck with the business in any event and feel free to send me an email if you would like to discuss further (email@example.com).
NickAugust 31, 2015 at 4:05 am #1187603GavinJMember
- Total posts: 2
Thanks for the response.
If roll-over does not apply and CGT is applicable, how would it be calculated?
As an example, if within three months the business had a profit of $5,000 at the time of changing from a sole trader to a company/trust structure, how would the business value be calculated? (i.e. I assume this is considered the ‘sale’ value in the eyes of the ATO – i.e. the sale of the business from a sole trader to a company?)
Many thanks.September 1, 2015 at 8:06 am #1187604NickKaroMember
- Total posts: 226
There is a bit to explain in this regard – feel free to give me a call (office number is 03 9942 7790 and mobile is 0401 154 313) and I’ll talk you through how it works and provide further guidance if required.
NickSeptember 1, 2015 at 9:39 am #1187605Angela StackelbeckMember
- Total posts: 26
You may also consider the liability issues that arise in terms of structure. Setting up a company structure may assist in protecting your personal assets in the event that any liability issues arise, whereas if you are a sole trader, your personal assets can be more easily available to a debtor.
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