In a partnership business, when one partner is reluctant to continue the business whereas the other partner is keen in continuing the same, then the interested partner have the option of continuing the business by converting it into sole proprietorship. There may be various circumstances when the partnership may end either in a positive or even in a negative note. Irrespective of that, all the accounting, client base details and legalities are to be legally addressed in order to avoid any harm or prevent the chances of jeopardising of the new sole trade business.
In order to have a smooth transition, the conversion from partnership to sole trader needs strategic planning and following all the legal regulations attached to the conversion. Following are the major steps that are to be followed while changing from a partnership to a sole trader in Australia.
While a partnership is being dissolved, it does not mean that it is the end of the business. The business can very well be continued by bringing in a change in the business structure. One of the major options being the conversion into sole trader after the dissolution of the partnership. After the dissolution, one may consider registering as a new sole trader business by opting for a new GST and ABN registration. All the necessary paper works are to be performed accordingly.
While in the process of dissolution of a partnership, it has to be seen whether the partners are willing to sell their interests. If any of the partners is interested in selling their interests, then it has to be seen whether the partner has a Capital Gains Tax (CGT) to be paid. In case of acquiring the shares of the other partners, then transfer duty has to be paid.
Steps To Take
It is also necessary to inform and alert all existing and potential clients about the partnership’s dissolution and conversion into a sole trader. If the clients are divided between the partners, every client should be informed about the change.
Also it is crucial to prepare and file all the necessary financial information and income with the concerned authority.
It’s also important to check on how any applicable local, state and federal laws impact your new business structure. In case any clause is not followed as per the regional law in Australia, then there would be problems that are to be addressed.
If the partnership business had employees, then the separating partners have to consider their obligations towards their employees. There may be requirement of terminating staffs or making them redundant. For that, you need to serve a notice and make a payment to the employees in lieu. The payment is dependent on the age of the employee and also on the time period that they have worked for the firm.
Last but not least, you need to re-obtain all the necessary tax, business and professional licensing for the establishment of the sole proprietorship as necessary.
There are a lot of steps involved in a business restructuring. However, an experienced partner such as Femia Accountants can make the process smoother and headache free.
Contact our office today on 9316 4500 or book a time to meet with us.