People often say that the only constant in life is change. Of course, that applies as equally to business as to individuals. For businesses, this sometimes means changing how you do business. At other times, it can mean changing the structure of the entity itself. If you are presently a partner in a business and are considering becoming a company, this article provides a guide on how to accomplish this. The process of changing from a partnership to a company involves two basic steps:
- dissolving your partnership; and
- establishing your company.
Dissolving a Partnership
Unlike a company, a partnership is not a separate legal entity to you. It is a group of individuals or entities who come together to carry on business activities. If a partner leaves or new partner joins, the opening partnership ends and a new one forms. The partnership structure itself is thus more fluid than, for example, a company.
For these reasons, most partnerships have a written agreement to govern the partnership. Amongst other things, this agreement usually provides the process for ending a partnership. Of course, all agreements remain subject to relevant law in each state or territory.
That means that to end your partnership to form a company, you will need to consult your partnership agreement closely. If it provides a procedure for dissolving the partnership (and most usually do), follow that process.
However, if your partnership has no agreement, the relevant law in your state or territory will determine how to dissolve your partnership. As you are dissolving your partnership to become a company, it is likely that all partners will have to agree formally to dissolve the partnership. The date of the agreement will be your dissolution date unless you specify otherwise.
The Required Paperwork
You will need to complete all the relevant paperwork for the partnership. You will need to cancel your Australian Business Number (ABN). Decide how to deal with any contracts or policies belonging to the partnership.
Be aware that you must appropriately deal with all loans made to the partnership. Also, take care of all your tax obligations. Make sure all your BAS Statements are up to date and that you file a final tax return for the partnership. Consider any Capital Gains Tax implications of ending the partnership. Also, consider your employer obligations. If you are terminating staff, all entitlements must be paid and all superannuation contributions correctly made. Lastly, cancel any bank accounts belonging to the partnership.
Form Your Company
You now need to create your new company. Be clear from the start the type of company is best for your needs. Will it be proprietary or public? Who will be the directors? How will you structure your corporate governance? Answers to these kinds of questions at the outset will guide you in setting up your new company.
You will need to register with the Australian Securities and Investment Commission (ASIC). There is a fee involved, and ASIC will issue you an Australian Company Number (ACN). Once you have registered, you can then apply for an ABN and a Tax File Number for the company.
Depending on its type, your company must meet all its obligations under the Corporations Act 2001 (Cth). These include reporting requirements and forwarding all necessary information and documentation to ASIC.
You must also be aware of your tax obligations. As a company, you will have income tax responsibilities, and you are likely to have goods and services tax obligations. Depending on your business, you might also require a special kind of licence.
As an employer, your company must pay all employee entitlements and make all necessary superannuation contributions. You must provide a safe workplace that meets all occupational health and safety requirements. You will need to comply with any relevant industrial relations legislation or awards.
The process of changing your business structure from a partnership to a company is not easy. When dissolving your partnership, ensure to;
- follow your partnership agreement (or the relevant law); and
- submit the required paperwork.
When forming a company, you will need to;
- decide which company structure is best for your business;
- register with ASIC; and
- fulfil your tax obligations.
If you have any questions about dissolving a partnership or starting a company, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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