The adage that the only constant in life is change holds true for both individuals and businesses. If you are a partner in a business considering changing to a company structure, you will likely be looking to dissolve your partnership and establish a company.
Dissolving a Partnership
Unlike a company, a partnership is not a separate legal entity. It is a group of individuals or entities who come together to carry on a business activity. If a partner leaves or new partner joins, the existing partnership ends and a new one forms. A written partnership agreement typically governs the relationship and, among other things, provides the process for ending the partnership. All agreements remain subject to relevant state or territory legislation (e.g. the Partnerships Act 1892 (NSW) in NSW).
When ending your partnership so as to form a company, you should consult your partnership agreement closely. If your business has no agreement, the relevant legislation determines how to dissolve your partnership. You will likely require the formal consent of all the other partners. The date of the agreement will be your dissolution date unless you specify otherwise.
You will need to cancel your Australian Business Number (ABN) and decide how you will deal with any contracts or policies belonging to the partnership. For example, you should transfer any contract you wish to continue to the new company.
Be aware that you must appropriately deal with all loans made to the partnership. You should also speak with your accountant regarding your tax. Make sure all your BAS Statements are updated and that you file a final tax return for the partnership. Consider any Capital Gains Tax implications of ending the partnership.
If you are an employer, and you are terminating staff, ensure that you pay all outstanding entitlements and superannuation contributions. Lastly, cancel any bank accounts that belong to the partnership.
Setting Up a Company
Before incorporating your new company, you should be clear at the outset what type best suits your need – proprietary or public? Who are the directors? How will your structure your corporate governance?
Once you have answered these questions, you will then need to register with the Australian Securities and Investment Commission (ASIC). After you have paid the required fees, ASIC will issue you an Australian Company Number (ACN). Once registered, you can apply for an ABN and Tax File Number for the company.
Depending on your company structure, your business must satisfy all its obligations under the Corporations Act 2001 (Cth) including reporting requirements and forwarding all necessary information and documentation to ASIC.
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 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 and 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, and you should first speak with your accountant. If you have any questions about moving from a partnership to a company, get in touch with our business structuring experts on 1300 544 755.