What is the volume of paperwork and ongoing costs?
A sole trader is a simple business structure and has considerably less paperwork and ongoing costs.
Sole traders will put their business income and expenses in their individual tax return using a separate business schedule. They do not need to lodge a separate tax return for their business.
- Check out our What are the tax differences between a sole trader and a company? information for more detail on sole traders and tax.
Record keeping is a legal requirement-you must keep records for at least five years. As a sole trader, you can decide whether to keep electronic or paper copies of your records, but it is recommended you store these in a safe and secure location and have a back-up of your records. Records have to be in English, or in a form that can easily be converted.
As a sole trader, unless you fall within one of the exemptions, you will have to register a business name and keep its registration up-to-date. The cost of a business name registration is $35 for one year or $82 for three years.
A company is a more complex business structure and generally has a higher volume of paperwork and ongoing costs. Some examples of the paperwork required and costs involved are detailed below.
The company itself is a separate legal entity and must lodge its own tax return and pay tax on its income. If you are a director, you will still need to lodge your own personal return as an individual, and if there is an associated trust, the trust must also lodge a separate tax return. You may also need to lodge a fringe benefits tax (FBT) return as a director, if you receive fringe benefits.
- Check out our What are the tax differences between a sole trader and a company? information for more detail on companies and tax.
Companies have more in-depth record keeping requirements. Financial records for companies must be kept for a minimum of 7 years.
Companies are subject to an annual review by the Australian Securities and Investments Commission (ASIC). As part of the annual review process, ASIC will send an annual statement that shows the current information ASIC holds about the company such as: the names of all officeholders, registered address of the business and its share structure. Part of the annual review process involves confirming that the company is solvent. Directors of the company will have to review the information and confirm its accuracy.
Company meetings may be held regularly or to resolve specific questions about the management or business of the company. The process to be followed in calling, conducting and voting at meetings is governed by the Corporations Act 2001.
A company resolution is the formal means by which decisions are made which affect the company. There are two types of resolutions: ordinary and special. The Corporations Act requires many decisions that affect a company to be made by resolution, some of which must be by special resolution. In addition, the constitution of a company may also require that other decisions be made by either an ordinary resolution or a special resolution.
Directors and Members Minutes of Meetings
Companies must keep a written record (also called minutes) of the members' or directors' resolutions and meetings.
Other general admin
You have duties as a company officer, including the obligation to:
- notify ASIC of certain key changes to the business (within 28 days)
- ensure the company has a registered office and principal place of business
- disclose personal details of directors and secretaries.
Check out our What could I be personally liable for as a sole trader vs.company? information for more on your duties and liabilities.
Browse ASIC's Guide for Small Business Directors.
Deregistering a company
Closing a company is more complex than just ceasing trading. A company needs to be formally deregistered so that it ceases to exist as a legal entity.
Registering a company
General compliance costs
There are a number of different fees that may apply to companies at different points in time, depending on what activities are being undertaken or what changes are being made.
The most significant of the ongoing fees that will apply to all companies is the annual review fee, which is currently from $254 for a proprietary company.
Note: The level of complexity changes depending on what kind of company you're setting up.
- Check out ASIC's Guide for Small Business Directors for more about your legal obligations as a company director.