Dear Aussie Stock Forum
I have been investing in ordinary shares and CFDs for a number of years now and feel as though I have a good general knowledge of the market and all things finance. I work full-time in an industry completely non market related but feel like I would like to take my "trading hobby" to the next level. It is my ultimate goal that as I build up my experience and trading capital I will eventually be able to quit my day job and invest full-time. I do not expect to realistically be in a position to do this for at least another 5 years - probably longer.
I am at the tail end of studying a Diploma of Business Studies and have learned about the various legal structures of setting up a business. I have been playing around with the idea of separating my trading activity from my personal finances by setting up an incorporated company. This has several advantages / disadvantages and I would be extremely eager to hear from anyone who has either done this themselves or is familiar with what is required.
The possible advantages I can see by doing this is:
- It forces me to separate my own personal finances from my trading. I would be required to pay myself either through a regular salary or by way of dividends. Any money that I put into the company cannot be used (or wasted as is often the case) on personal expenses. By owning a company I would be required by law to always act in the best interests of the business and hold myself accountable by way of preparing and maintaining proper financial records.
- I can claim all my trading expenses such as computer equipment, internet access, brokerage, newspaper and magazine subscriptions, seminars, business travel and education as tax deductions.
- All profit is charged at the company tax rate of 30%.
- I can open bank accounts and trading accounts under the name of my company to trade with.
- I can separate myself emotionally from the personal aspect of trading. I know this may sound strange but I'd personally find it less stressful and easier to trade according to my trading strategies if I knew that it wasn't my personal money being invested - it'd be the companies. I would be an employee of a business working each day and all I would receive is a set weekly or fortnightly salary (and hopefully a giant bonus at the end of each financial year).
- Being able to purchase physical property in the name of company - as my trading capital increases I would like the possibility of purchasing investment property in the name of my business.
- Professionalism and Ego! I'd feel comfortable explaining to friends and family that instead of quitting my job and day trading I started up my own company and was a professional investor. It sounds much more professional than simply being a day trader.
The possible disadvantages include:
- Reporting requirements are significantly more complex and detailed than they are for a personal investor. I would be required to submit reports to ASIC on a regular basis outlining the companies activity and financial position. As stated earlier this disadvantage also has an advantage of forcing me to become accountable for all the money flowing in and out of the company.
- I miss out on the income free tax area, although as I work full-time I do not benefit from this anyway.
I am sure there are many more advantages / disadvantages and I’d encourage everyone to submit their ideas or tips. The other question I have is whether I would be required to obtain a financial services license even though I was only trading for the companies benefit (not offering a service to the general public).
Thanking you in advance for your feedback.
Alex / Tollbridge.