Many small to medium enterprise (SME) owners earn their income through multiple businesses. There are several options available to you when setting up your business ventures, the most common being sole traders and limited liability companies. These options attract different registration requirements, as well as reporting, legal and tax implications. Below, we look briefly at how some SME owners tend to operate their businesses through these business structures for multiple business ventures.
1. Sole Trader Operating Under Multiple Business Names
A sole trader business structure is when a person trades individually. This option will give you full control over your assets and business decisions. Operating as a sole trader means that you are responsible for all aspects of the business. This includes responsibility for any debts or losses incurred. Consequently, your personal assets are placed at risk. Although setting up as a sole trader is relatively inexpensive and simple, the risks of potential liabilities sometimes outweigh any benefits.
Registering as a Sole Trader
To register as a sole trader, you will need to apply for a Tax File Number through the Australian Taxation Office’s website. You will also need an Australian Business Number (ABN), which you can register through the Australian Business Register’s website. All ABN registrations are free. Once set up as a sole trader, you will have the option to register a business name with the Australian Securities Investments Commission (ASIC). Fees to register your business name with ASIC are $34 for one year or $79 for three years.
Operating as a sole trader exposes your personal assets to risk if you need to satisfy any outstanding debts. Further, if you become liable for the debts and losses of one business, this may affect your other businesses.
2. Operating as One Company with Multiple Business Names
Unlike a sole trader, a company structure is a separate legal entity to you individually. This means that your company, which owns the business, will have the same rights as a natural person and be able to:
- incur debts;
- sue others; or
- be sued by others.
There are various types of companies. However, the most common is limited liability companies.
Registering Your Company
Companies face higher registration fees then sole traders. There are also additional administrative costs that are ongoing due to certain reporting requirements.
You will need to register your company with ASIC. To do this, you will need to:
- select a name that is not in use;
- adopt a company constitution;
- obtain written consent from each person who agrees to become a director, secretary or member of the company. Note that a proprietary (private) company requires that you have at least one director. Therefore, if it is just you, you will need to indicate this;
- complete ASIC’s application form and lodge it with the applicable fee.
Similar to a sole trader, a company can operate multiple businesses with different business names. If the company became liable for the debts and losses of one business, this may also affect the company’s other businesses. However, the directors would lose control of the assets if the company became insolvent. Therefore, if the company is closed, the assets of the various businesses would be sold to pay off debts.
If you own and run multiple separate businesses, you should consider setting up a holding company. Here, the holding company would own all the businesses’ assets and intellectual property. Each business would be run through separate subsidiary operating companies that:
- trade on behalf of their respective business;
- enter into contracts with third parties;
- incur liabilities; and
- employ employees.
If someone made a claim against the business under a contract, they would generally need to sue the operating subsidiary company, not the holding company. Therefore, separating subsidiary operating companies enables the holding company to isolate its risk.
It can be very complex to run multiple businesses simultaneously. Therefore, it’s important that you have the appropriate business structures in place. The most common business structures for multiple business ventures are operating as:
- a sole trader under multiple business names; or
- one company with multiple business names.
For any business structuring questions, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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