Many clients ask me why they should set up a Pty Ltd company. The answer to that is – it depends.
The most appropriate structure you choose really depends on a number of factors including:
- The type of industry your business is operating in
- The value of assets within the business
- The number of employees in your business
- Future growth
- Net profit
- Tax implications if you were to set up a company
As you can see, this is a bit more complicated than a yes or no answer. You should really speak to your accountant so they can go through each of the factors to assess your situation and work out what is the best structure for you. Setting up a company means you must register the company with the Australian Securities and Investment Commission and lodge annual company tax returns with the Australian Taxation Office, an exercise that can be costly and tedious if it’s not suitable for your situation.
There is a clear advantage that small Pty Ltd companies ( with less than $25 million turnover) have – companies end up paying a corporate tax rate at 27.5% which is significantly lower than the highest marginal tax rate for individuals of 47% (including Medicare levy). Note these rates are based on the 2018-19 tax rates.
Other great benefits of owning your own Pty Ltd company are:
1. Asset Protection
Keep your business separate from your personal assets.
Having the business under a company can create an impression that the business is much larger than it really is, a key in growing your reputation.
3. Companies Prefer to Deal with Companies
Companies believe that it is less risky to deal with companies than individuals, as the company is a separate legal entity.
4. Perpetual Succession
A company will exist indefinitely (unless it is wound up) which will enable you to sell the company when you retire or resign.
5. Limited Liability
The company is separate from its owners and thus the owners will not be forced to pay for their company’s debt.
If you want to learn more about companies, have a look at the ASIC website.
Also, check out our guide if you would like to know more information about companies vs sole traders.
Ultimately, becoming a contractor or setting up a Pty Ltd company boils down to your priorities and situation. Feel free to discuss your options with us at Box Advisory Services. We offer a 100% free initial business consultation in which we can discuss what option is the best for you.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.