A Small Business Guide to Moving from a Partnership to a Company in Australia

A Small Business Guide to Moving from a Partnership to a Company in Australia

In Australia, small businesses often start as partnerships. When a partnership reaches its limit regarding growth and stability, it is possible to change the business structure into a company. This blog post will guide you on changing from a partnership to a company. We outlined everything you need to know, including tax consequences.

Understand the Tax Consequences

One of the factors to consider before changing from a partnership to a company is the tax consequences. The Australian Taxation Office (ATO) views a company as a separate legal entity. The company must file its own tax return. Moreover, there may be capital gains tax, stamp duty, or transfer duty implications for both parties that you have to consider when a partnership transfers assets and liabilities to the company. We suggest consulting with a tax professional to understand how these taxes may affect your business during the transition.

Transferring Assets and Liabilities

As mentioned above, the partnership’s assets and liabilities must be transferred to the new company—equipment, stocks, licenses, and contracts. You must review the current lease contract or loan agreement under the partnership’s name must be reviewed. It might have to be reassigned or finalised before being transferred to the company. It is advisable to check this with a lawyer and to ensure that all assets and liabilities are adequately transferred.

Transfer Registration and Insurance

After transferring assets and liabilities, you must update partnership registrations and insurance agreements under the company, including state and territory-specific registrations, such as ASIC and ABN. Legal obligations, such as workers’ compensation and insurance, must also be updated to remain valid.

Setup the Company

The next thing to do is register the new company structure with the relevant authorities, including ASIC and ATO. You must choose an appropriate name for the new company, appoint directors, and get a registered office address. Check the partnership deed as well if it can be converted to a shareholders’ agreement. This way, everything from a partnership structure can be transferred to a company structure which is essential to ensure all details are set up correctly. If set up correctly, the business can run smoothly.

Understand How to Remunerate the Business Owners from the Company

Now that business is a company. It is important to understand how to remunerate business owners properly. During the partnership, the business owner’s income is receiving a percentage of profits. In a company structure, directors receive wages through PAYG withholdings from the company, and shareholders can receive dividends, which are payments made to owners from the company’s profits. This is cheaper than receiving employment income because of tax benefits in most instances, but again, it is important to seek professional advice before choosing one of the remuneration options.

In conclusion, take time to plan each step to avoid any mistakes in moving from a partnership to a company. Be aware of the tax consequences, how to transfer assets and liabilities to the new company, the need to check and update insurance and registrations, and how to remunerate business owners from the company. We hope this blog post has been insightful and a useful guide to small businesses thinking of changing their business structure in Australia.

Should you require any additional assistance please don’t hesitate to contact us.