Rolling over a Sole Trader to a Company
If you have been thinking about changing from a sole trader to a company please STOP and read below.
Some of the reasons that you may want to change your business structure to a company include the below:
- depending on what industry you are in certain customers may not want to deal with a sole trader
- increased asset protection
- ability to sell part of the business
- perpetual succession (a company will continue to exist regardless of who happens to be the shareholder or company officer at any point in time)
- tax savings
It is not all roses... Having a company instead of a sole trader business has the following disadvantages:
- significantly more cost to setup and run (annual ASIC fees, accounting fees)
- more compliance for financial reporting
- the money in the bank is no longer yours, it belongs to the company so when you take it out you will pay tax on it
- if directors fail to meet their legal obligations, they may be held personally liable for the company's debts
There are many factors to consider and it is not as easy as clicking a few buttons. Some of the steps are detailed below and may vary depending on your individual situation. If you decided to proceed we will provide you with a customised checklist.
1. Decide on the date that the new company will start and the sole trader will end - they cannot trade at the same time - ideally the start of a new financial year (1 July) or - start of a new quarter (if registered for quarterly BAS)
**if you rollover part way through a financial year you will need to do a sole trader tax return as well as a company tax return and financials for that year**
2. Incorporate the company with ASIC (incl preparation of all the required documentation) 3. Transfer business name from sole trader to new company (if applicable) 4. Apply for new ABN & TFN & GST & PAYG Withholding registration (as the company is a brand new legal entity) 5. Open bank account in the new company name (with TFN and ABN attached) 6. Change over any payment facilities such as Paypal, Stripe, Afterpay etc 7. Change over any direct debits to your new company bank account 8. Setup new Xero file (cannot use existing as the company is a brand new legal entity) - new bank feeds activated (stripe, paypal etc) - payroll setup including STP - superannuation setup - invoicing templates setup - new Hubdoc/Receiptbank if applicable 9. Once you are setup as a company you become an employee of the company which means you can no longer take drawings without classifying them as wages or dividends. We will need to set you up on payroll. You also need to ensure that there are NO personal expenses going through the company bank account. 10. Advise clients of new bank account for all invoices from the effective date of the new company. 11. Obtain market values of any assets such as vehicles 12. Transfer any vehicles with Service NSW and pay any transfer duties e (this may cause issues with finance on assets) 13. Refinance any loans held in the sole trader (if applicable) 14. Calculate employee entitlements such as leave and transfer balances to new Xero file 15. Employees to fill in new Tax File Number Declaration forms & Super Choice Forms 16. Process adjusting entries in sole trader Xero file to dispose of the business to the new company 17. Process adjusting entries in company Xero file to purchase the business from the sole trader 18. Complete the final month of bookkeeping in Xero (will need to ensure all invoices from customers have been collected before finalising) 19. Do a final BAS for sole trader (if applicable in the sole trader) 20. Receive final BAS refund/pay liability for sole trader (if applicable) 21. Transfer bank account balance from sole trader to company 22. Close down the sole trader bank account 23. Ensure the insurance policies held by the business have been updated to your new company 24. Discussions for additional services required now that you have a company such as: - ASIC Management - Tax Planning - Fringe Benefits Tax (FBT)
As you can see there is a lot to consider and you may need our help 😂 If you would like to book a consultation to discuss further please do so using this link. https://calendly.com/twosides_natalie/60min
If you have any more questions regarding the above please contact us on 02 9030 0269.
Founder & Director
Two Sides Accounting
02 9030 0269