It's an exciting time when tradies decide to go out on a limb and start their own small business. Although exciting, it's a huge step to take and can sometimes feel a little overwhelming. After all, where do you start?
A good starting point is deciding which legal business structure to use and this will depend on a few things including the size of the business, your business goals, and your individual circumstances. This is a big decision to make so it's a good idea to get some professional advice before you get started from a business, financial or legal advisor.
To help you get started, here is a quick guide to the different legal structures you can choose from.
A sole trader is a the simplest business structure. It's easy and inexpensive to set up and there are very few formalities you need to consider. If you operate as a sole trader, you control and manage your business and take all legal responsibility. Although it means you retain control of any assets, it also means you take full responsibility if something goes wrong.
A partnership is an association of two or more people who run their business as partners or receive a joint income. It is inexpensive to set up and although formal partnership agreements are common, they're not essential. Partners jointly own the assets and liabilities of the business which means that any debts are shared equally, regardless of whether you are responsible for the debt.
A company is considered a seperate legal entity and is able to hold assets and conduct business in its own right. It's regulated by the Australian Securities and Investment Commission (ASIC). A company is controlled by directors but is owned by shareholders. It's much more complex to set up with additional reporting requirements.
A company can sue or be sued, but the company director can also be held personally responsible for certain offences or if they are negligent. Because the assets, and any losses, belong to the company, the owner's personal assets generally can't be used to pay for any debts however there are some exceptions to this situation.
A trust is when a trustee (an individual or company) carried out business on behalf of the beneficiaries of the trust. It's common for family businesses to set up as a trust so family members can be beneficiaries without actually having involvement in the business. A trust can be expensive and a formal deed is required and a yearly administrative task needs to be undertaken.
When it comes to insuring your new business, it's also a good idea to get some professional advice about the best insurance package for your business needs. Have a chat to your insurance broker to get an idea of what insurance cover you need.
At All Trades Cover, we specialise in offering insurance for tradies. For further information or for a quote, contact All Trades Cover on 1300 826 850 today or fill in our easy online form.