The Pros of Running a Business as a Company

One may find it challenging to start a business in Australia, and one of the things to decide on is the suitable business structure. Businesses may operate as sole traders, partnerships, trusts, or companies. Each has its pros and cons. This article will focus on the pros of running a business as a company. A company is a separate legal entity from its owners that can enter contracts, borrow money, sue, be sued, and pay income tax.

Limited liability:

Because a company is a separate legal entity and can conduct business in its own name, it offers limited liability protection to its shareholders. Creditors can only access the company’s assets and not the shareholder’s personal assets when a company suffers from debts or legal obligations. This level of security is absent in other business structures.

Tax benefits:

Another advantage of a company structure is it offers tax benefits for small business owners. If a company manages its income efficiently, it can save on tax. A company pays tax on its profits at the corporate tax rate of 30%, and a company can distribute its profits to shareholders as dividends, which are taxed at the individual tax rate. Aside from saving on taxes, a company can claim deductions for expenses incurred in running the business, such as rent, salaries, and equipment.

Access to capital:

Small businesses with a company structure can also raise capital from investors, like angel investors, venture capitalists, and private equity firms. Investors choose to invest in a company rather than a sole trader or trust because they believe it is more stable and credible. A company can also issue shares to raise capital which can be used for expansion and growth. Compared to other structures, like sole traders or trusts, its owners rely on their personal savings or loans.

 Continuity and succession planning:

A company will continue to exist even after the shareholders leave or pass away. The company shares can also be transferred by selling, facilitating succession planning. Neither sole trader nor trust can do this as both are not a separate legal identity, and the business will end if the owner dies or retires. Establishing a company ensures the longevity and sustainability of the business.

Credibility and professionalism:

The credibility and professionalism of a business are important, and a company structure has this. A company creates an impression of stability and permanence as it requires to follow formalities such as annual general meetings and having a constitution. This is what customers, suppliers, and investors are looking for. Having a company name and logo builds brand recognition and awareness, which can improve sales and customer loyalty. On the other hand, sole traders or trusts may have different levels of the said opportunities.

Conclusion:

There are many benefits of having a company structure. It offers limited liability protection, tax benefits, access to capital, continuity and succession planning, and credibility and professionalism. Before choosing this as your business structure, we advise you to seek professional advice from a qualified accountant or lawyer to evaluate if this is the right option, as business structure depends on the business’s goals, size, and industry, among other factors.

If you’d like to setup a company, Taxopia offers company registration as a service.

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