Business Structure
You are thinking about starting your own business. You may have been thinking about this for a while now – even years. There are a lot of questions to answer before you begin. The most important of which is:
“What type of business structure should I have?”
Your business structure will help protect your assets, determine how and when you pay tax, and may change over time to suit your needs. It is important that you research which business structures are available, then decide on the one best suited to you today. While some structures are more costly to set up from the beginning, it is often cheaper to do it correctly from the outset, rather than trying to change structures later on or to lose all your personal assets because you were not properly protected.
There is generally no perfect structure and in many cases, a combination of entities will work together to achieve the best outcome.
The four most commonly used business structures in Australia are:
Sole Trader
This is an individual operating as the sole person legally responsible for the business. While you can employ people under this business structure, it is important to not the “sole person legally responsible”. This means that your personal assets may be used to pay off business debt (see our page on Asset Protection to learn more). Sole Traders are also liable to pay tax on all the profits of the business
Partnership
A partnership is an association of 2 or more people running a business. Under this business structure, each person involved in the partnership can have their assets seized to use to pay off business debt. However, there are a few additional perks that are unavailable with the Sole Trader structure.
Company
This business structure is classified as a legal entity separate from its shareholders. This means that the company has the same rights as a person, or, in other words, the company can incur debt. If structured correctly, your personal assets generally cannot then be seized to pay for the debts of the business. This is also a more complex business structure to set up, has stricter reporting requirements, and requires additional licenses.
Discretionary Trusts
A trust is considered a business entity that holds property for the benefit of others. This business structure is the most in-depth and requires stricter, more formal administration and operational guidelines, however it can offer the most flexibility.
There are advantages and disadvantages for each structure type.
In order to find a best fit for you there are questions which must be asked and answered. Start your research by making an appointment with our Springwood accounting team to discuss the questions that must be answered. They are here to help guide you in discovering which business structure will best suit your needs.