Is a trust the right legal structure for your business?

Choosing the right legal structure is a crucial part of running a business. The business structure you choose will affect your legal obligations, tax, asset protection, and reporting obligations. Regardless of whether you’re just starting out, or your business is growing, it’s important to understand the options. While this article can’t advise which structure is best for your unique circumstances, it does explain the most common types of Australian business structures and key features of each. A sole trader is an individual trading on their own. In a partnership, income, losses, and control are shared among partners. A company is a legal entity, separate from its owner(s). A trust is an entity that holds property for the benefit of others. An association is an entity usually established for recreational, cultural or charitable purposes. Keep reading to learn more about the types of legal structures new business owners usually consider – as well as how your obligations may differ, depending on the structure you choose. Types of business structures Sole trader Entrepreneurs who want to run their business all on their own are likely looking at a sole trader, or sole proprietorship, legal structure. A sole proprietorship is easy and inexpensive to set up. It’s also arguably the simplest type of business structure, because no one else is involved. Below are some of the key features of a sole proprietorship (or sole trader) business structure. Sole traders use their personal tax file number when lodging their income tax return. Income reporting is simple — there is no separate business tax return, all income is reported in the sole trader’s individual tax return. Throughout the year, sole traders typically put money aside for tax time using Pay As You Go. Sole traders will need to register for Goods and Services Tax (GST) if their annual GST turnover reaches $75,000 or more. A sole trader can employ staff. A sole proprietorship is an ideal business structure for business owners who want to be able to make all the decisions. However, it goes both ways. Sole traders also take on all accountability in the event of hardship or lawsuits. If the business goes into debt, a sole trader’s assets could be under threat. It’s also difficult to raise capital, if you’re planning on growing your business, and sole traders can't claim a deduction for drawing money from their business. Many new business owners start out with this structure, as it is relatively simple to change legal structures if you’re starting from a sole proprietorship. The same cannot be said for switching from another legal structure. Partnership A partnership is a legal structure under which two or more people operate a business, distributing income or losses between themselves. Instead of a single person making all the business decisions and taking on sole responsibility, control over the business is shared among at least two — and sometimes up to 20 — people. Naturally, that means the risk is typically shared also. A partnership may be an ideal option for business owners who are willing to relinquish some control in exchange for more widespread accountability. Similar to the risk a sole trader faces, if the business goes into debt each partner’s assets may be under threat. Below are some of the key features of a partnership business structure. A partnership doesn't pay income tax on the profit earned. Instead, each partner is required to report their share of income in their own individual tax return — and pay tax on their share. An ABN is required for all business dealings. A partnership is required to have its own Tax File Number, and all income and deductions must be reported in an annual partnership return — which is lodged with the ATO. As above, if the business’s annual GST turnover is $75,000 or more, it must be registered for GST. A partnership is not required to have a written partnership agreement in place, however it’s a good idea to prepare one for obvious reasons. A partnership agreement outlines how income and losses are each distributed amongst partners, and helps ensure all partners are on the same page from the outset. Company In a sole proprietorship or partnership, the business owners are part of the business. A company, on the other hand, is its own legal entity. This separation means that operating a company comes with less personal risk. A company exists as its own legal entity. Below are some of the key features of a company business structure. Companies must have a TFN. Companies pay tax at the company tax rate. As above, if the business’s annual GST turnover is $75,000 or more, it must be registered for GST. A company must pay Super Guarantee Contributions (SGC) for any eligible workers. This includes the director(s) of the company. A company is more expensive to register than a sole proprietorship or partnership, and the reporting requirements are also more complex. Whatever money the business makes belongs to the company, instead of going to the business owners. This reduces the liability of shareholders when it comes to debt and lawsuits, but it also increases the amount of startup paperwork and red tape. One consideration to keep in mind is that a business set up under a company structure is easier to sell or pass to someone else, as it’s set up as its own legal entity. Trust A trust, like a company, is a legal entity. The difference is that it is established to benefit people outside of the organisation as opposed to bringing in a profit for shareholders. Below are some of the key features of a trust. A trust must have its own TFN and ABN. As above, if the business’s annual GST turnover is $75,000 or more, the trust must be registered for GST. Whether or not a trust is required to pay tax depends on the wording of its deed, and whether income earned is distributed to the trust’s beneficiaries. The profits of a trust are divided among beneficiaries, who then pay tax on the money they make. Incorporated Association An association can be incorporated, or unincorporated. When an association is incorporated, it becomes a legal entity in and of itself — protecting its members from legal liabilities. Incorporation is a simple and inexpensive process, making it an ideal way to establish a legal entity through which small, community-based groups can provide a service. An incorporated association is intended to do good for a community — typically by providing a recreational, cultural or charitable service to people  — rather than make a profit for shareholders. All profits are put back into the association’s activities, rather than distributed to those involved in the business. Below are the key features of an incorporated association. An incorporated association will usually have members, a committee, a public officer, and a registered office. The association can accept gifts, bequests and grants, as well as buy land, take out loans and sign contracts. An incorporated association can sue, and be sued. Members and officers will generally be protected against personal responsibility for any debts or liabilities incurred by the association, although they could remain personally liable for outstanding fees. An approved constitution must be in place, outlining qualifications for membership, quorums for meetings, provisions for elections, and more. Any profits made by an incorporated association are not subject to tax. There are a number of qualifications that must be met before an association can become incorporated. However, the governing legislation differs in each state or territory. Further information regarding this type of business structure can be accessed via the relevant state bodies . Choosing the right structure for your business Choosing a legal structure requires business owners to consider how much power they want over the decision-making process, as well as how much accountability and responsibility they are willing to take on. When structuring a new business, or restructuring an existing business, it’s critical to understand the extent of your personal liability — as well as tax implications. Make sure to schedule a time to meet with your financial and legal advisors to discuss which legal structure best suits your particular circumstances. Here are some additional resources to help you choose your business structure. Business Registration Service | Help me decide The Australian Taxation Office | Choosing your business structure The Australian Taxation Office | Overview of legal structures Business Victoria | Business structures Small Business Development Corporation (WA) | Choosing your business structure Business Queensland | Business structures Fair Trading (NSW) | Business structures Business Tasmania | Choosing a business structure SA Business Information Hub | Business structures Northern Territory Government | Business structures Please note this article is for educational purposes only. It does not provide legal, accounting, or tax advice.

What is an ABN? An ABN (Australian Business Number) is an 11-digit number issued by the Australian Business Register that identifies your business to the government. It 's used for tax and other business purposes, and it can also be used by the general public to find your business on the ABN Lookup website. Who needs an ABN? Anyone who is running or starting a business or enterprise in Australia needs an ABN. If you’re not sure if your activity is regarded as a business, ask yourself the following questions: Will it involve commercial sales of products or services? Is the activity more than just a hobby? Ie. Do you intend to make a profit from it? Will you be repeating the activity? Will you keep records of the activity in a business-like way? If you answered ‘yes’ to the above questions, you will almost certainly require an ABN. An ABN is essential for various reasons. It allows businesses to register for GST if their annual turnover exceeds $75,000, enabling them to claim GST credits and comply with tax obligations. Having an ABN also ensures you can issue valid tax invoices, making it easier to manage transactions and maintain professionalism with clients. Additionally, an ABN is often required to work with other businesses, apply for government grants, or secure financial assistance. Other situations may also require creating ABN, such as acting as the trustee of a deceased estate, super fund or a Self-Managed Superannuation Fund (SMSF), operating a charity, or leasing an investment property. Why do you need an ABN? When running a business in Australia, there will be many instances where you will be required to provide an ABN. These may include (but are not limited to) the following: Applying for a business bank account: banks or financial services providers often request an ABN as part of the documentation needed to open a business bank account as it helps them verify the legitimacy of the business. Business tax deductions: to claim tax deductions on business-related expenses, the ATO generally requires that your business have an ABN. Similarly, businesses that want to claim fuel tax credits for fuel used in business activities need to have an ABN. Identifying your business: when invoicing or placing orders, many clients and suppliers may require your ABN to help them verify your business's legitimacy and ensure smooth and transparent dealings. To get an Australian domain name: to register for a web address that ends in “.au”, you must be able to prove eligibility in Australia and it’s recommended that you have an ABN to do so. Registration as a charity: charities and non-profit organisations seeking registration with the Australian Charities and Not-for-profits Commission (ACNC) generally require an ABN. Government contracts: businesses engaging in contracts with the Australian government or its agencies usually need an ABN. Claim GST credits: to claim money back on GST that you’ve been charged on business supplies and expenses, the ATO will require that you have an ABN. Employer obligations: if you have employees, you need an ABN to meet your employer obligations, such as withholding taxes from employee wages. When do you need to register for an ABN? You need to register for an ABN prior to incurring income or expenses relating to the business. When you fill out the application form, you will be asked for the date that you expect to start your business. This date, however, cannot be more than six months in the future when you apply. Prior to applying for an ABN number you will need to have undertaken some relevant ‘commencement activities’ to prove that you are serious about setting up your business. These activities could be as simple as setting up a social media account or website, or purchasing business cards and stationery, or they could be more substantial steps such as purchasing a business; leasing a premises; obtaining insurance, equipment or stock; or applying for finance. It’s not essential to have undertaken all these activities prior to applying for an ABN number, but a certain number will be necessary to prove the legitimacy of the business. One thing you do need to do before applying for an ABN however, is to decide on the right structure for your business, for example, a sole trader, partnership, or trust. Read our article on how to structure a new business here. What documents are required to apply for an ABN? To apply for an ABN you will require the following documents: A tax file number (TFN) and the TFNs of any associates – for example, partners, directors, and trustees The date your ABN is required (the date you expect to start any business activities) An entity legal name, which will appear on all official documents or legal papers Business contact details including an address, postal address, email address and phone number The business’ physical location(s) Depending on your circumstances, there may be additional documents that you need to provide: If you are using the services of a professional advisor, you will need to provide their Australian Financial Services licence number If you are using a registered agent for your tax or BAS preparation you will need to provide their registered agent number. If they are authorised to make changes or update information on behalf of the entity, you will also need to provide their contact details If you have previously held an ABN, Australian company number (ACN) or Australian registered body number (ARBN) you will need to provide these. What’s the difference between an ABN and an ACN? Unlike an ABN, which is legally required for all Australian businesses, an Australian Company Number (ACN) is only required if your business is registered as a company. If this is the case (read our article on structuring a business here), then you'll need both an ABN and an ACN. This unique nine-digit number is issued by ASIC and must be displayed on all company documents. Click here to learn more about registering a company . How much does an ABN cost? Registering for an ABN through the Australian Government’s Business Registration Service is completely free. Of course if you choose to use a tax practitioner or another service then that may involve fees, but the process is actually very straightforward, so it's worth having a look yourself before asking for help. How do you apply for an ABN? There are two ways to register for an ABN: Via the online application form on the Australian Business Register website Via the online application form on the Business Registration Service’s (BRS) website . The advantage to applying through the BRS is that you can register a business name at the same time as your ABN application. If you don’t, you’ll need to go back to the Business Registration Service to register your business name. How long does it take to receive an ABN? If you have provided all the relevant information, and your application is successful, you will receive your 11-digit ABN immediately. If, after applying, you receive a reference number it means that the ABR may require additional details or information. Applications are usually received within 20 business days and they will contact you if further information is needed. How do you update your ABN details? To update your ABN details, including your business addresses, contact details, and business activities, simply log in to the Australian Business Register (ABR) online services. Once logged in, select 'Update ABN record' and follow the prompts. Changes made online take effect immediately. If online access isn't available, you can update your details by contacting the ABR directly, consulting your registered tax professional, or completing and mailing the appropriate form. It's important to update your ABN details within 28 days of any changes to your business. What if I forget to update my ABN details? Everyone makes mistakes every now and again, but it really is best to do your best to keep your ABN details up to date. If you forget, the Australian Taxation Office (ATO) could impose a fine ranging from $220 to $4,400, depending on the severity and frequency of the oversight. Also, outdated ABN information can hinder your access to government assistance, especially during emergencies. Government agencies rely on current ABN details, so inaccurate information may result in missed opportunities for support. Starting a business? Zeller has your finances covered. We know you’ve got a lot on your to-do list, but thanks to Zeller you can cross off ‘open a business transaction account’ in as little as six minutes. Plus, with a suite of tools to help you accept payments, manage your expenses and track your cash flow, Zeller will ensure you start your business on solid financial footing. Open a free Zeller Account today and you’ll gain access to: Zeller Transaction Account : a free account to store your funds. Zeller EFTPOS Terminal : the smart way to accept in-person payments. Zeller Debit Card : an expense card that helps you stay on top of business spending. Zeller Invoices : a platform for sending unlimited invoices and getting paid online. Tap to Pay with Zeller App : the easiest way to take payments with no hardware required. Zeller Virtual Terminal : a simple solution for taking payments from a web browser. Zeller App : one convenient app for managing all your business finances from anywhere. And there’s more! We’re constantly updating our tools and features, so stay up to date by signing up to our newsletter . You'll get all the latest Zeller news and updates straight to your inbox.

What is necessary to open a business account? To open a business transaction account , you’ll need to provide: certified copies of identification documents, such as a passport or driver’s licence details of your business proof your business exists, such as a website and social media profiles Additional documents may be required if your business operates under a particular structure.  For example, if your business operates under a trust, documents identifying the beneficiaries of that trust may be required for account verification. Further, traditional banks often require you to visit a bank branch in person in order to set up a business account. Wondering how to set up a business account, or how to open a transaction account online? The easiest way is to sign up for Zeller. In just 5 minutes, most businesses can be up and running with a free Zeller Transaction Account . Once set up, you can create as many accounts as you like to separate business funds — and link each to a Zeller Debit Card for simple, trackable spending. Let’s dive deeper into the details, so that you can make an informed decision about the best account for your business. What is a business account? A business account is an account traditionally offered by incumbent banks. In recent years, digital banks and neobanks have introduced similar offerings. Business bank accounts offer a single place to accept deposits and make payments, while keeping your business and personal finances separate. A transaction account enables you to do the same. A business account itself is pretty straightforward. Different banks and alternative providers offer additional features and services, on top of the base offering, which usually come with extra costs. Fees including, but not limited to, monthly account fees and minimum deposit fees are important to keep in mind. Focus on finding an account that aligns with your specific needs in order to keep fees to a minimum. Why open a business account? There are a multitude of benefits that come with opening a separate account for business purposes. For one, setting up a business account can make bookkeeping less of a headache — especially at tax time. A business account also helps you stay in line with the relevant government rules and regulations. The Australian Taxation Office stipulates that ventures operating as a company, partnership or trust must have a business account for tax compliance. And, while sole traders don’t face the same requirement, a business account provides the same benefit of keeping personal and professional transactions separate. Once your business account is set up, you’ll have a clear path to sharing important information with your accountant or handling your tax obligations yourself. Business accounts also give you a clear view of your business finances. All of the relevant transactions are tracked in one place, making it straightforward to look at recent activity and identify any potential areas for concern. Opening a business account also helps your company appear more mature and professional. While customers won’t notice the difference at the point of sale, they will likely see it when reviewing their monthly statement. The legitimacy a business account offers can also encourage suppliers and vendors to form a relationship with you. When you hear the term “business bank account”, it’s usually in reference to a transaction account. This type of account is used to make and receive business payments on a daily basis. A business savings account is another type of business bank account, very similar to a personal savings account. These types of accounts serve as a place to deposit and hold money for longer periods of time. Who can open a business account? Banks and other providers of financial services have a number of rules and security measures in place to make sure anyone attempting to open a business account is doing so in good faith — and is eligible to receive one in the first place. The requirements for opening a business account are strictly defined but straightforward, at least as far as the highly regulated world of banking is concerned. You may be asked to provide a variety of documents and information to prove your business is legitimate and eligible for an account. This mostly involves things you likely have on hand right now or can quickly access, such as your company’s full name, Australian Business Number, and tax file number. The physical and registered address of a business are also commonly requested. You will also need to identify key parties, including both company directors and any employees who will access the account. You, your partners, and potentially your staff may need to produce passports or a certified copy of drivers licences. When should I open a business account? Opening a business bank account makes everything from tax time to accepting customer payments easier. As Australians increasingly move to using debit and credit cards for everyday purchases, this will only become more important. A business account is foundational for smoothly processing card and online payments and keeping track of your business’s finances. You should be looking to set up a business account as soon as you’ve set your business in motion. You’ll need to set aside some time to gather the needed documents and information, but accounts that offer online registration will save you precious hours (and, in some cases, days). You’ll also need to give some thought to the impact any fees will have on your budget. To save on fees, look for providers who are upfront about the costs of using their platform. How can I open a business account? Understanding how to open a business transaction account and set it up correctly is crucial. It streamlines day-to-day management of your finances and makes your business appear more professional. And, in many cases, a business account isn’t just a smart idea — it’s a requirement. You have plenty of choices when it comes to choosing a business account. There are traditional banks, of course, but their offerings don’t always align with the needs of modern business owners. High fees, excessive paperwork, and long application processes can sap your energy, turning what should be a basic task into a drawn-out process. These are just some of the reasons why Australian Businesses aren’t satisfied with the Big 4 banks — and why we built Zeller. We’re reimagining business banking for Australian merchants. With Zeller, you can sign up in minutes and begin taking payment. Discover how our fee-free Zeller Transaction Account , used in conjunction with Zeller Terminal and Zeller Debit Card , can help accelerate your cash flow and grow your business.