Best Business Structure for Online Business
Starting your online business
Starting your online business can be very exciting. One of the many things to think about is your business structure. It’s a great idea to think about these points to help you decide which structure best suits your needs.
- why you are setting up your business
- where the money is coming from
- your long term goals for the business
- the advantages and disadvantages of different business structures
Common business structures in Australia
It doesn’t matter where you are in the country now, the rules around your business structure will be very consistent across all the states and territories of Australia. The four most common business structures used by small businesses in Australia are:
Sole trader: You operate as the sole person legally responsible for all aspects of the business. As a sole trader you can still employ other people to help you run your business.
Company: A company is not you, it is a separate legal entity owned by its shareholders.
Partnership: Partnerships are formed by agreement rather than registration and are an association of people or entities running a business together. It is different to registering as a company.
Trust: A trust is usually formed by a Deed, but can be ‘bare’ or not documented. There are different laws that apply depending on where you are. The trust holds property or income for the benefit of others and is managed by a trustee.
**IMPORTANT NOTE: A registered business name, or even an unregistered trading name, is not a business structure. It is just a name. That business name might be used by you as a sole trader, your company, a trust you have set up, or a partnership. It is not a legal entity and provides no protection or separation between the person or entity that registers the business name, and the liabilities of the business.
Different Considerations for Business Structures
Things to think about before choosing a business structure for your online business include:
- Are you making any money yet?
- Cost to set up and maintain.
- Do you have personal assets you’d like to protect and keep separate from business liabilities?
- Are you looking for income sharing opportunities?
- Do you want to attract outside investors into your business?
- Would you like to be able to sell all or part of the business in the future?
- Tax and other duties.
- Are there future potential tax savings that could affect your choice?
- The reporting and compliance obligations of the business structure you choose.
Different people have different priorities, so there is no ‘one size fits all’ approach to choosing your business structure. For example, if you are not making any money, your risk is likely to be low and it will be easier to operate as a sole trader. Once you are making more money than you can afford to lose, you might consider setting up a trust or a company to operate your business.
Is it better to get my accountant or my lawyer to help me set up my business structure?
In every profession there are people with different levels of skills and experience, so it really depends upon the qualifications and experience of your advisers. Some accountants are great in their area, and some lawyers are too. Know what your goals are and ask your adviser how they can best help you to achieve your goals.
Don’t be afraid to ask if a proposed structure can be simpler! I’ve seen business structures that might have made sense at the time, but become burdensome later on and are impossible to unravel without huge cost.
Can I register a business name if I am a sole trader?
Yes! As a sole trader you can chose to operate under your own name with an ABN, like “Jeanette Jifkins, Solicitor” or you can chose to operate using a business name, like “Onyx Online Law”. You can register the business name against your sole trader ABN and then use that name in your small business. If you do use a business name, you need to register it.
Why should I register a business name for my online business?
It is an offence to operate a business under a trading name (other than your own name) if it is not registered. You can be fined up to around $5,400. You will need an ABN (Australian Business Number) before you can register a business name. Who ever has registered the ABN will be the person or entity behind the business name.
Business name registration is now managed by ASIC. You will need to set up an ASIC Connect account and login before you will be able to find a link to register a business name.
Is my domain name the same as my business name?
Your domain name might be your business name, and it might not. Probably the easiest way to work this out is to think about what name will be on the invoices you business issues. If the name on your invoices is the same as the domain name, then it will also be your business name. You will still need to register your business name, or establish a company with that name, even it is the same as your domain name.
If I have registered a domain name, do I have to register a business name?
Yes. Domain name registration has nothing to do with business name registration. You register a domain name with a domain registrar. You register a business name with ASIC.
Do I have to register my business name if it is the same as my company name?
No. Once you register a company name, no one will be able to register the same business name and you don’t need to register the same name as a business name. They might still be able to register a similar name by adding something like (Australia) to the name.
How do I find out if I can register my business name?
If you are worried about similar business or company names that are already registered, try reserving a company name through ASIC (it costs about $44). When you reserve the name it will be checked and you will be told whether or not you can have it, or if you need to pick another name.
What does ATF mean?
ATF means ‘as trustee for’ and is used when you name the trustee of a trust. The trustee is the legal ‘face’ of the trust. You can have a person or a company as trustee. In legal contracts and on financial documents you will need to use the full legal name of the trust. For example – Small Business Pty Ltd aff Online Business Ventures Trust.
You might also have registered a business name, in which case the full legal title of your online business might be – Small Business Pty Ltd aff Online Business Ventures Trust trading as Software Kings.
Do I have to write ‘trading as’ or ‘t/as’ on my website?
‘t/as’ means ‘trading as’. You do not have to put the full legal name of your business on your website. Provided you have a registered business name and an ABN, that is all you need to use. So from the example above, instead of writing Small Business Pty Ltd aff Online Business Ventures Trust trading as Software Kings ABN 00 123 456 789 you can simply put Software Kings ABN 00 123 456 789 on your website.
It is a lot simpler to simply use your trading name and ABN than your full legal name and avoids the problem of messing it up. People who don’t understand their business structure will sometimes mix up what entity is ‘trading as’ and which one is a trustee.
Can I register more than one business name to my company?
Yes you can. If you want to operate a variety of sub-divisions or small business units within your company, you simply register a business name for each unit using your company ABN. You can then trade with the different trading names, but each trading name will have the same ABN.
Can a trustee company run a business?
When you establish a company for the purpose of being a corporate trustee, that should be the company’s sole purpose. If you also want to trade through a company, you should establish a separate company to do that.
As a corporate trustee, a company is responsible for managing the business or assets of the trust for the benefit of the beneficiaries of that trust. The trustee does not own the trust property, and the trustee can be changed.