Changing from a sole trader to a company

Posted by , June 26th, 2014

Many small businesses start out as sole traders and once they grow, decide they want to start operating as a company. This may be because they want to take on employees, limit their personal liability, or because their employer wants to deal with a company rather than a sole trader. Whatever the reason, the process is relatively straight forward, and involves starting a new business (the company) and shutting down the old one (the sole trader).


Step by step guide

1. The first step is to register a company, this is generally going to be a proprietary limited (pty ltd) company. This is a straight forward process and can be completed in a few minutes using our online registration form. Many sole traders will have a registered business name, which allows them to trade as something other than their legal name. For example, John Smith might be trading as ‘Expert Plumbing’. If you want your new company to have the same name, you need to provide the business name registration details with the company registration application. On our form, the relevant section is under the heading ‘Details of identical business name(s)’. Filling in this section will allow the company to be registered.

2. The second step is to register the new company’s ABN. A common misconception is that you can reuse the ABN from the sole trader business, but a company has to have a new ABN. eCompanies can register the ABN as an optional extra along with the company registration, or you can register it directly with the ATO yourself.

3. Next up, if you have an existing registered business name, is to transfer the ownership of the business name to the new company. This can be done on the ASIC website under the business names section.

4. Amend any terms and conditions you may have, and also notify your clients and suppliers. You’ll need to advise them of your new bank account details and provide them with your new business terms and conditions. If you’re operating under contractual arrangments with your customers or suppliers, you will have to ensure the old contract is cancelled and a new one, with your company as the counterparty, is signed. You should do this as quickly and efficiently as possible in order to minimise the hassle for your accountant and your liabilities.

5. Make sure you are correctly insured.

6. Transfer any assets that you may need to to the company.

7. Cancel your old ABN if it is no longer needed, you may decide to keep it if you think you may still invoice people on a sole trader basis outside of the company.

Conclusion

While relatively straight forward, if you are unsure of anything it always pays to get professional advice from your accountant. A small cost upfront can pay dividends down the track.



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