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How to start a small business and earn a fortune

17/10/2022 by
The Marketing Team
Starting a new business is an exciting time. You are most likely focusing on your business name or plan, but it's important to not forget your legal obligations. If you are planning on opening your first business, you may not know what your legal obligations are. In this Business Kitz article, we will take you through […]
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Starting a new business is an exciting time. You are most likely focusing on your business name or plan, but it's important to not forget your legal obligations. If you are planning on opening your first business, you may not know what your legal obligations are. In this Business Kitz article, we will take you through a list of the important basics to consider before starting a new business.

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1. Choose your structure

There are three main business structures in Australia - sole trader, partnership and company. The structure you choose will be dependent on many factors and will carry out different tax obligations, rights and fees.

Sole trader

When starting a small business, registering your business as a sole trader is inexpensive and the easiest way to start your business. To register as a sole trader, you will need to apply for an Australian Business Number (ABN) under your personal name. This means you will be taxed on an individual basis and this can become costly if you are generating a high revenue through your business.

Your business will also have no separate legal entity and you will be held responsible for the debts and liabilities of your business. Due to this, if your business is in debt, you will be required to use your personal finances to cover this cost. Another factor to consider is that as a sole trader, you will be trading under your legal name. If you have a separate business name in mind, you will need to register this separately.

Partnership

Partnerships have many similarities to sole traders, except partnerships are for those who are starting a business with another person (or group of people, as long as this number does not exceed 20). In this case, all partners will share business profits and losses and according to your partnership agreement, you will be equally liable for any debts.

To register a partnership, you will need to apply for an Australian Business Number (ABN), and you will also need to register a Tax File Number (TFN) for the business. Similar to sole traders, in a partnership, you will be trading under the legal name of all partners. If you have a separate commercial name in mind, you will need to register separately.

Company

In Australia, the most common structure that a small business will register is a proprietary limited company. This business structure is significantly different to a sole trader and partnership. A company is considered a separate legal entity from the person/people running the business. In this case, if the business becomes indebted, it will not be attached to your personal accounts. An advantage of registering as a company is that they have the choice of paying tax separately to individuals, which ultimately means paying less tax.

Another difference is that a company can be registered under a business name of your choice, that will usually end in ‘Pty Ltd’ (which indicates a privately owned company) instead of your legal name. In addition, your business must be complying with the Australian Securities and Investment Commission (ASIC) requirements by reporting your finances accurately and fulfilling your duties as a company officeholder.

2. Registering for an ABN

Prior to starting a small business, you need to register for an Australian Business Number (ABN). An ABN is an 11 digit number that will be used to identify your business. Registering for an ABN is a quick, free and online process, which should only take 10-15 minutes. All businesses require an ABN to create accounts with suppliers or issue invoices.

3. Registering your business name

If you have spent hours deciding on the perfect name for your small business, you should register it with ASIC. Similar to an ABN, you can register your business name online and this will make the name officially yours. 

4. Trademarks

Registering your business does not make that name exclusively yours or give you ownership over that name. Another person can still register a similar name and use a name similar to a trademarked name, which could cause you legal issues. That is why it is important to conduct a trademark search before registering a business name. Trademarks are more expensive and start at $220. It is your choice to register your business name as a trademark.

5. Registering for GST

Businesses that make less than $50,000 a year in sales are not required to charge GST, but if you are intending on having more than $50,000 a year in sales, you will be required to register for GST.

6. Insurance

Insurance is one of the most overlooked aspects of setting up a business, but it is one of the most important. You should consider purchasing business insurance that covers the basics, such as natural disasters or theft, and ideally you should ensure your policy includes legal liability to cover your business in case someone tries to sue you.

Legal advice

If you require further assistance starting a small business, our sister company, Legal Kitz, can help! They will assist in any business-related matters and offer a FREE 30-minute consultation to assist with any of your queries. Additionally, our subscription plan offers employers access to over 150+ legally compliant, employment, and HR-related document templates to take away the hassle regarding the legalities of being an employer. Click here to find out more about our subscription plan.

About
The Marketing Team
Business Kitz Marketing team are experts in their field. You can expect the best business guides and updates on employment law here.
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