For web designers in Australia who wish to take their skills and use them to create a business, several decisions must be made as part of that process. Perhaps the most important, and the one that will define the legal status of their web design business, is what business structure they will use.
The choice will most likely be one of three legal business structures: sole trader, partnership, or company. Each has different characteristics and essential variations in its legal status, which web designers should be aware of. To that end, we have outlined the details of all three below.
Sole Trader
Becoming a sole trader is the simplest business structure of the three options. Often referred to as sole proprietor, to become a sole trader, you must first obtain an Australian Business Number (ABN). Next, you need to register the name of your business, which can be your name or a business name that has not been previously used by another business.
Although having a separate bank account from your personal statement is not required, it is highly recommended as it allows you to track your business’s income and outgoings, especially when it comes time to finalize your accounts for tax purposes. Again, although not mandatory, you should also take out business insurance.
The reason for that previous suggestion is that as a sole trader, you are personally responsible for the unlimited liabilities of your business, including debts, meaning your personal assets could be at risk. Also, if someone takes legal action, it is you who the subject to any penalties, and again is where insurance can protect you.
Partnership
For web designers who wish to start a business with one or more other web designers, a partnership is a business structure option. The first step, after choosing your partner(s), is to create a partnership agreement that outlines how the business will operate and be managed by the partners.
Once the partnership agreement has been signed, the process is similar to a sole trader whereby you obtain an ABN and then register the business name unless you plan to trade under each partner’s name simply, e.g. Peter Smith and Claire Jones. It is more important for a sole trader that the business partner has a separate bank account from the partners’ personal accounts.
As with a sole trader, liabilities are unlimited, which means that any liabilities that a partner accrues whilst running the business are liabilities that all the other partners are responsible for.
Company
For web designers who wish to avail themselves of the greatest protection against liabilities, a company is the legal business structure they need. Forming an LLC means creating a legal entity that is separate from the induvial web designer and so, if that business accrues debts, the web designer’s assets would not normally be at risk.
Some services can help set your company up or you can do so yourself. First, choose a name, such as Smith Web Design Limited, and determine who the shareholders and directors are, although this can just be yourself. Next, you register the business in the relevant state or territory, including the location of your company’s registered office.
Whilst protections are greater, setting up a company does cost more than a sole trader or parentship, and there are far more regulations and administrative tasks to comply with, both at the start and whilst running your company.