If you are a sole proprietor, you might wonder if you can pass your business on to your kids. A sole proprietorship is the most common type of business structure in Australia. This is because sole proprietorships are the simplest business structure to set up and operate. Therefore, it is common for small business owners, particularly tradespeople, to adopt this business structure. This article will explore the process of selling your sole proprietorship to your kids.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Can I Sell My Sole Proprietorship?
One of the key features of a sole proprietorship is that it is not incorporated. This has various advantages, including making it easy to:
- set up;
- terminate; and
- control.
Furthermore, your sole proprietorship will have minimal reporting requirements and a simple tax structure.
Indeed, it would be helpful to note that a sole proprietorship is not incorporated. Therefore, your business is an extension of you rather than its own legal entity. So, as a sole proprietor, you are the business, and the business is you. This means there is no separate business to sell. Instead, you will need to sell or pass on the business’ assets separately.
How Can I “Sell” My Sole Proprietorship?
Once a sole proprietor dies or ceases to continue their sole proprietorship, their business essentially dissolves. This means you cannot sell the sole proprietorship itself. However, you can sell all its assets and essentially pass on the entire business.
As a sole proprietor, your business assets combine with your personal assets. Business assets include tangible goods such as manufacturing and operational equipment. Additionally, it includes intangible assets such as your business’s intellectual property.
Similarly, when a sole proprietor dies, the business assets become part of the owner’s estate with all their other personal effects. However, you can include the transfer of all the business assets to your children in your will, which means your children would be able to inherit your sole proprietorship. Again, once attached to a new sole proprietor, it would technically be a new business entity.
Continue reading this article below the formShould I Incorporate My Sole Proprietorship?
Once a business is incorporated, you can transfer the shares or assets of the company to your kids. You can do this by either a sale agreement or in your will.
In addition to the succession benefits, there are several other benefits to incorporating your sole proprietorship. For example, this process will separate your personal and business assets, protecting you from any of the company’s debts or liabilities. Further, incorporating will also make raising funds for your business easier, which can help you scale your business easier.
How Can I Incorporate My Sole Proprietorship?
If you decide to incorporate your sole proprietorship so that you can easily pass on your business to your children, there are a few key steps you will need to take.
Firstly, you will need to understand your newfound duties as the director of a business. Directors of companies have far more duties and obligations than sole proprietors. Understanding these duties will help ensure you meet your duties as a director.
You will also need to register your business with the Australian Government’s Business Registration Service (BRS), which provides a one-stop place to complete the relevant tax and business registrations. Once your registration has been processed, you will be issued an Australian Company Number (ACN). You can then use this to apply for an Australian Business Number (ABN). Although you will already have an ABN for your sole proprietorship, this will not be able to be transferred to your new company.
Key Takeaways
One of the key features of a sole proprietorship is that it is not incorporated. This means that the sole proprietorship will dissolve upon the owner’s death. However, if you wish to pass on your business to your children, you can either:
- pass on each of the business assets separately to be formed into a new business; or
- incorporate your business and transfer the company through a sale agreement or in your will.
If you need assistance passing on your business to your children, LegalVision’s experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1800 534 315 or visit our membership page.
Frequently Asked Questions
A sole proprietorship is the most common type of business structure in Australia. As a sole proprietor, your business is an extension of you rather than its own legal entity. There are many advantages of sole proprietorships, including being easy to set up, control and terminate. Sole proprietorships also have minimal reporting requirements compared to other business structures.
One of the key features of a sole proprietorship is that it is not incorporated. This means there is no separate business to sell or pass on to your children. Instead, you will need to sell or pass on the business’ assets separately. If you wish to pass on your business to your children, you might consider incorporating it for ease of transfer.
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