Business structures


27 Feb 2015

Make sure you know who is trading your business


2 min

Just as important, make sure others know.

Quite often, we see small businesses starting under the name of the person running the business, then to move into a company structure whereby the individual is the director and shareholder. The reason for this transition varies, but can include following advice to establish the ‘corporate veil’ to try limiting liability.

Usually, this involves acquiring a shelf company, registration changes with the ATO such as BAS and tax file number, and group tax registrations.

However, many important elements of the former structure aren’t transitioned to the new company which, in the event of the appointment of a liquidator, can make things somewhat difficult for the individual previously running the business. Some of the more common examples include notifying the landlord and reassigning the lease to the company, actually notifying the employees, and letting the bank know, so that trade doesn’t continue through the individual’s personal bank account.

One very critical, but basic element, is notifying the suppliers. Ideally, all personal accounts should be closed and paid out, and new account arrangements, credit applications and finance arrangements should be opened in the company’s name. Otherwise, if creditors continue to supply the individual with no knowledge of the company structure, there is a real possibility of personal liability if debts are unpaid (particularly if a liquidator is appointed to the company).

This is why proper advice from accountants is invaluable to ensure that each element of a transitioning business is moved away from the individual to the company, to avoid these risky scenarios.

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