Question

A really big accountancy firm are thinking about a significant direct investment into Australia in 2021 but they are unsure about what legal form to use. You are a tax consultant and they have asked you to explain, in a memo, the relative strengths and weakness of the tax regime for partnerships and companies. They know the non-tax law implications of adopting one of other form but they have come to you specifically to understand the relative merits of the tax system in relation to each option.

Answer 1

strengths and weakness of partnerships

	Strengths	Weakness
	Simple and flexible to operate	Decisions are never made equally
	Opportunity for partners to bring different skills and expertise to the table	Disagreements in management may occur
	Less financial burden on the individual when starting out	Difficult to add or remove partners
	Less paperwork to fill out when starting	All profits must be split between both parties
	No financial reporting obligations	Unlimited personal liability
	Easy to include on your tax return	Each partner is taxed at an individual tax rate
	Individuals can claim business losses on their personal tax return	Partnerships can become complex when the number of partners gets higher
		No access to government grants

strengths and weakness of Companies

strengths	weakness
Finance raising (recognised structure for both debt and equity funding)	Cost of set-up (though basic cost has r reduced in recent times for simple company structure establishment
Flexible business expansion prospects;	Ongoing costs (reporting and accounting) where complicated transactions or structure required;
Written shareholder agreement clarifies exit and governance and dispute processes;	Loss of control (i.e. to a management board, board of directors, etc.);
Separate legal personality;	Understanding of company concepts, governance and operations;
Asset protection by corporate veil (separation of operation and ownership);	Layer of regulation by ASIC and Corporations Act 2001 (Cth);
Limited liability afforded to shareholders;	Limited tax concessions, i.e. Capital Gains Tax in relation to real estate/assets;
Unlimited life;	Director (office holder) obligations and liabilities, including severe personal penalties; and
Transfer of ownership by share transfer, allowing for flexibility in introducing partners to the business; and	Insolvent trading risks to directors personally
Tax benefits afforded to companies.