Which Business Structure is Right For You?

It is important to consider the advantages and disadvantages of the various business structures available and to choose the best structure to suit your circumstances.

So what are your options?

1. Sole Trader

A sole trader is the simplest and cheapest business structure you can select from as it has few legal and tax regulations. As a sole trader you trade on your own and control and manage the business. You are legally responsible for all facets of the business, and debts and losses can’t be distributed among other individuals.

2. Partnership

A partnership is relatively inexpensive to set up and operate. It is an association of people who carry on a business and distribute income or losses between themselves. A formal partnership agreement is an important tax document if profits or losses are not distributed equally among partners.

3. Company

A company is a separate legal entity with higher set up and administration costs because of additional reporting requirements. A company is run by its directors and owned by its shareholders. A company provides some asset protection but directors can be legally liable for their actions and in some cases the debts of a company.

4. Trust

Setting up a trust can be expensive, as an official deed is required and there are required annual administrative tasks for the trustee to carry out. A trust deed outlines how the trust will to operate. A trustee is legally responsible for the procedure of the trust. The trustee can be an individual or a company. Profits from the trust go to beneficiaries.

 

5 questions to ask when considering your business structure

1. What type of business are your operating?
2. Does the industry you work in have regulatory requirements?
3. What does your income level look like?
4. How do you see your business growing?
5. Are you building your business for lifestyle or profit?

 

A basic comparison of the most common business structure

	Sole Trader	Partnership	Company
Establishment Fees	Low	Medium	High
Complexity	Simple	Moderate	Complex
Asset Protection	No	No	Yes
Can I take out profits from the business?	Yes	No	No
Can I employ staff?	Yes	Yes	Yes
Is it a requirement to pay myself super?	No	No	Yes
Is my legal structure easily changed?	Yes	No	No
Tax Planning Opportunities	No	Limited	Limited
Capital Opportunities	No	No	Yes
Ease of Exit	Yes	Yes	No

 

Every structure has its advantages and disadvantages which needs to be carefully considered before making a final decision. To learn more about business structure, engage with an advisor today by giving us a call on (03) 9583 0550 or scheduling an appointment here.

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