Clients will often ask what the difference is between a Business and a Company? A Partnership and a Sole Proprietorship? Is it still a Business if the name is not registered?
A Business and a Company are both entities that perform a service, but the legal liability of its owners is different and so is the way they pay taxes. It is still a ‘Business’ if the name is not registered as long as services are being performed.
A ‘Business’ means the business entity and the owners are one and the same. The owner of the business is personally responsible and liable for all debts incurred by the business, including taxes owed to the government. A business name can be registered (often called a “Trade Name”) or the business can operate under the owner’s name, or both.
A ‘Company’ means the corporate entity is its own separate legal entity and is responsible for its own debts and liabilities. The owners hold shares in and direct the activities of the company, but they have limited liability for the company debts. Also, there are different tax rules and tax rates for companies. In order to create a company, you must incorporate a business pursuant to specific rules set out by the Business Corporations Act. You should rely on the advice of an accountant and a lawyer to assist you with this process – there are many expensive and time-consuming mistakes that can easily be avoided with professional assistance. Also, if there are several company shareholders, it is advisable to have a Shareholders Agreement in place at the commencement of the company activities.
A ‘Partnership’ means two or more entities that come together for a common purpose. The partners of the partnership can be individual people or companies, or a combination of those. It is advisable to have a Partnership Agreement put into place at the commencement of the partnership’s business activities.
A ‘Sole Proprietorship’ means an individual person operating a business. It is the least complicated business structure and is how most businesses begin until the business grows large enough to transition into one of the other business structures like partnerships or companies. An accountant usually advises the owner when it is advisable to make that transition.
There are many different ways to operate a business and many complexities as to which structure to choose. It is advisable to ask your lawyer and your accountant which structure will work best for you.