A sole proprietorship is the simplest and most common type of business entity. The main feature of this business structure is that it must have one sole owner. However, over time, you may outgrow this structure and seek to incorporate.
An incorporated business means that it is a separate legal entity distinguished from its owners and directors. There is a range of benefits to incorporating your sole proprietorship, including risk protection and taxation benefits.
This article will take you through how you can incorporate your sole proprietorship.
1. Understand Compliance
Before you incorporate your business structure, you should understand the importance of the Corporations Act and the duties you will be subject to as the director of your company.
However, you must not let this scare you or deter you from incorporating your sole proprietorship. Essentially, your duties as a business owner require you to:
- act in good faith;
- manage the company with care and diligence; and
- avoid improper use of information obtained in the course of your position.
As a director, it will also be your duty to ensure that the company does not become or continue trading while insolvent.
2. Check Your Business Name
Before incorporating your business, you should check that your business name is available. If you have been operating your sole proprietorship under your given name, you will not have registered your business name. However, companies must register their business name with the Australian Securities and Investments Commission (ASIC).
If your name is available, you will be able to transfer ownership of your business name to the new company.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
3. Register Your Business
Once you have decided to incorporate your sole proprietorship, you will need to register your company. You can usually do this using the Australian Government’s Business Registration Service (BRS), which provides an online service that combines both business and tax registrations. However, some business types, such as companies with unlimited liability, will need to register using a paper form.
Once finalised, ASIC will place your company on the register and issue you a certificate of registration.
4. Transfer Your Assets
Once you have officially incorporated your sole proprietorship, you will need to transfer your business assets. This is because all assets in a sole proprietorship are in the sole proprietor’s name and are your personal assets. Therefore, you will need to transfer your assets to the company name.
Further, you will need to transfer any licences that you used to operate your sole proprietorship into the new business name, as well as any existing business contracts.
5. Maintain Your Records
Incorporated companies have a range of reporting obligations. For instance, this includes loading annual financial reports with ASIC and business activity statements (BAS) to the Australian Taxation Office (ATO). Therefore, you should keep a record of any business debts, business profits and business losses, among others.
Additionally, all companies are required to keep a record of their financial and accounting transactions. These records include all sales transactions, invoices and receipts. You will need to maintain these records for seven years.
Key Takeaways
Incorporating your sole proprietorship is a significant step to help grow your business. To incorporate your sole proprietorship, you will need to:
- understand compliance;
- check your business name;
- register your business;
- transfer your business assets; and
- maintain your assets.
If you need assistance incorporating your sole proprietorship, LegalVision’s experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
While a sole proprietorship is a simple business structure, there are many advantages to incorporating your business if you outgrow this structure. These include liability protection, taxation benefits, enhanced credibility, a greater ability to raise capital for your business, and easier business transfer.
To incorporate your sole proprietorship, you will need first to understand compliance and your newfound duties. You will then need to check your business name, register your business, transfer your business assets and maintain your assets.
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