Many businesses start off as a sole trader (little cost, heaps of risk) and later move to another structure for a good reason (perhaps more tax efficient, asset protection, better CGT advantages, reduced personal risk).  So, what are the steps to change structure?

1. Decide on the principal and secondary advantages you want.

(We use an entity/benefits matrix to assist this process, and PS:   there is no perfect structure!).

For simplicity, lets's assume it will be a company (a Trust will be similar).

2. Decide on Ownership and Office Holders.

There may be more than one shareholder for dividend purposes, but it only needs one director and secretary.  Directors can be held responsible for debts incurred by a company and may have to sign guarantees for suppliers, premises, loans, etc.  (Consider one partner as director and the other owning the private assets).

3. Incorporate

Use a service or your professional provider.  Search the name first on ASIC to ensure it's available.  You may be able to incorporate using your existing business name (you give yourself 'permission' on the application form).  Apply to the Tax Office for a tax file number, ABN and GST registration, employer registration.  You may also need to change Domain Names.

4. Consider your Business Terms and Conditions

No doubt the business is growing which is one reason to change structure.  A growing business needs systems, controls and efficient reporting.  Look at your terms of trading with customers;  will customers have to provide a guarantee, can you speed up collection of outstanding accounts with new terms for payment, when do you pursue an overdue debt, who is responsible for ordering stock, who will be paying accounts, etc.

5. Advise your Customers and Suppliers

Customers need to know the new bank details to pay their accounts.  To be effective, contracts with customers and suppliers may need to be changed and re-signed.

6. Insurance

Inform your broker or insurer and ensure cover is appropriate and correct.  Obtain Workcover, and also register as an employer with super funds.

7. Employees

Employment needs to be transferred to the company.  This could mean not just informing them but completing new employment contracts (all rights and benefits carry forward to the new employer).  Request new TFN Declarations (and lodge to ATO) and Choice of Super Fund (keep copies in your files).

8. Transfer Assets to the Company

While there was a change eliminating CGT on restructures from 1/07/16, State Stamp Duty may still be payable.  Document and value what is being transferred; debtors, work in progress, stock, vehicles and plant, goodwill, property, etc.  Stamp Duty at conveyance rates is payable (between 3% and 5.5%).

9. Accounting

Your business is now more complex, and you have more legal responsibility.  Make sure your accounting records are appropriate, preferably cloud-based with good security.  If you don't understand the accounting reports, have a regular meeting with someone who can analyse and interpret.  Also, prepare a 12 month forecast of profit and cash, and compare regularly against actual results.

Changing structure is complex and not just about saving some tax.  If you were starting a business, the right structure from day one may eventually save a lot of trouble and cost.  If you do need to change structure, first consider the advantages sought as a means for selecting the preferred entity, get professional advice on possible legal and tax issues, and then work through the steps.