Many businesses start off with a sole trader structure, and move to a company structure when the sole trader feels the time is right to move to the more tax efficient, safer company structure. This article sets out the steps to take in order to move your business structure from sole trader to company quickly, efficiently, and in a cost effective manner.
1. Decide on Ownership and Office Holders
The first matter to decide on is whether you’re going to bringing on board new shareholders or not. If you are, you will want to work out if you’re going to have more than one office holder or not. Once these decisions have been made you will be in a position to incorporate your company.
Generally the most appropriate structure to use will be a PTY LTD company. You can either instruct and accountant or lawyer to do this for you (LegalVision can assist). It’s important that you choose a company name that isn’t in use; and of course if you can use the same name as the business name you’ve been trading under as a sole trader you’ll ensure continuity in your branding.
3. Amend your Business Terms and Conditions
As you’re setting up a new business structure to trade through, you’ll have to amend your business terms and conditions. A LegalVision lawyer can do this for a low fixed-fee, as the changes should be relatively minor, but it’s important that your terms reflect the fact that the business entity is now a company.
4. Advise Your Clients and Suppliers
It’s important that you advise your clients and suppliers that you’ll now be trading through a company. You’ll need to advise them of your new bank account details and provide them with your new business terms and conditions. If you’re operating under contractual arrangements with your customers or suppliers you will have to ensure the old contract is cancelled, and a new one, with your company as the counterparty, is signed. You should do this as quickly and efficiently as possible in order minimise the hassle for your accountant and your liabilities.
You’ll need to make sure your insurance provider understands you’re now operating through a company and insures you correctly.
6. Employment Contracts
If you do have any employees (unlikely if you’re a sole trader, but not out of the question) you will need to transfer their employment to the new company. This means entering into new employment contracts with each employee with your company as the employer.
7. Transfer the Assets to the Company
This last step is in fact the most complicated. Many sole traders don’t actually have many assets, so they don’t need to worry about this issue, but if you do need to transfer assets it’s important to discuss the transaction with your accountant or a tax lawyer. The tax treatment of the transfer is crucial; you will obviously want to minimise it as much as possible!
Changing your business structure is actually quite complex, which is why it’s a good idea to set yourself up with a company structure from the get to. If you do need to change your structure, it’s important to get good legal advice in order to avoid legal or tax issues. Questions? Call us on 1300 544 755 or fill out the form on this page.