VIDEO: Business Insights - Choosing a Business Structure
In this short video, Maclarens Senior Partner Jessica Diep looks at some of the main considerations to take into account when choosing how to structure, or restructure, your business and explains why it is so important to get it right.
Which Business Structure is Right for My Business?
Are you looking to start a business? Maybe you already own a business that has grown and you are now wondering whether it is time to change how it is structured?
Either way, how you choose to structure and run your business is very important.
Your choice of structure will depend on the size and type of business you own, as well as how you want to run it.
The main types of business structure are:
- Sole Trader
Running a business as a Sole Trader is the simplest and most inexpensive way to set up. You, and you alone, are legally responsible for all aspects of your business, including any day-to-day business decisions, any debts and any losses.
You have full control of your business decisions, there are fewer reporting requirements, and you can still hire people to help you run your business as long as you comply with employment regulations such as paying superannuation and taking out worker’s compensation insurance.
HOWEVER, being a sole trader can also increase your personal risk.
Because you have full control, you also become personally liable to pay tax on any income derived from the business and you can’t split the business profits or losses with other family members.
Even more of a risk is the fact that there is unlimited personal liability which means that all of your personal assets (including your house, car, furniture etc) are at risk if things go wrong!
Another common business structure is a partnership.
A partnership allows you to go into business with another person and then share control of the business including any profits or losses, as well as any decision-making (which can be appealing to anyone lacking in business confidence).
There are some tax implications, but setting up a partnership is definitely easier and less expensive than forming a company.
HOWEVER, and this is a big however, a partnership still has unlimited personal liability in much the same way as a sole trader arrangement. This means that each partner is individually liable for any debts incurred by the business.
- Forming a Company
Companies can be a lot more complicated to set up and are generally used by people who expect their income to be highly variable.
The company becomes a separate legal entity, which is owned by shareholders and controlled by Directors. Any income earned by the company belongs to the company and individual Directors have only limited liability if they are found to be in breach of their legal obligations.
- Operating your business as a Trust
Some businesses are structured and run as a Trust.
In this type of structure, a Trustee is legally responsible for the operations of the business.
In the simplest of terms, a Trust isn’t actually an organisation. It is a legal structure set up to hold assets. For instance, you might want to set up a Trust to hold your business assets, then appoint a Trustee to manage them. The Trustee managing the assets is often a Company and the Trust is used to provide asset protection and limit liability.
A Trust is also very flexible from a taxation perspective.
Importantly, this type of structure can be complicated to set-up and operate and requires a formal trust deed that outlines how the trust should operate and what kinds of tasks the trustee must undertake.
- Combining different approaches
Of course, there is always the option of combining elements of different structures to create a hybrid or tailored business structure to suit your own individual needs. After all, every business is unique.
An experienced lawyer can help you to determine the most appropriate structure and then set up your business in a way that minimises risk and, most importantly, maximises potential. At Maclarens, we know what works.
And finally, don’t forget that if you are setting up a new business, once you have determined the best structure and a business a name, you will need to REGISTER that business.
We can help you with the Registration process to ensure you comply with all of the regulations and don’t miss any important steps.
We can help you to register your business with ASIC, obtain an ABN, and register with IP Australia to protect your name. Then we can look at registering your website domain and social media as well as checking for any other regulatory or licensing requirements.
Don’t leave anything to chance. Set your business up correctly from the start. Give Maclarens a call today.