Choosing The right Business Structure
Insight 365 Accounting will help you determine which structure is suitable for you to make sure your business complies with the tax laws, which treat each structure differently. Choosing the proper structure from the very beginning can potentially save you a lot of money.
The structure becomes the foundation for protecting assets, minimising taxes and maximising profits for the business. The most suitable structure would be one that balances the need to protect you from liability with the need to keep all expenses as low as possible.
Choosing the structure isn’t something you address lightly. There are many advantages and disadvantages to consider for each structure. If you fail to choose the right structure for your business, it could cause serious consequences down the line, such as legal complications, tax consequences, and can even stop you from selling the business.
That’s why it’s so important to seek professional advice before you choose how to set up the business.
Here in Australia, the four main business structures are sole traders, partnerships, trusts and companies. Employee-owned businesses are also on the rise.
Once you’ve decided to start your own business, you’ll have to choose which business structure suits your needs. The structure will depend on whether you want to run the business yourself, with a business partner or several associates. It will have a direct impact on your tax obligations, your profits and capital gain
A sole trader is the simplest and most common type of business structure. It’s also the least expensive type to set up and run. You’re considered as “self-employed” and the manager of your business, although you may pay contractors to help you out.
Under the law, you and your business are technically the business, which means you’re personally responsible all aspects of the business, including its legal obligations.
A partnership is based on two or more people co-owning the business and sharing the profits. If you choose this set up, you can employ others. However, usually owners will manage and run the operation.
For tax purposes, your partnership is treaded similarly to a sole trader because you will be self-employed. You would also own all the assets of this partnership, which means you have unlimited liability. Accountants Super and Tax has comprehensive strategies to help you determine the ways to minimise these risks. Depending on your type of business, we may also need to help you obtain certain licences.
A company separates its owners (shareholders) from the business so that it’s run by its own directors. This structure offers various tax and legal advantages over other business structures.
However, the set-up and admin costs are higher because of the additional reporting to remain compliant with its regulator, the Australian Securities and Investments Commission.
Although the company will provide asset protection to some degree, the directors may be held liable for their actions and the company’s debts.
For advice on setting up a Company, call Steve on 6143 0147 or send an email to book your initial consultation.
Employee-owned businesses are on the rise in Australia. This structure allows you to give your employees shares in your business and they effectively become part-owners or full owners.
This structure is particularly popular because it motivates your employees, and boosts engagement, involvement and retention. It’s also a great structure for succession planning when it’s time for you – the founder – to exit the business.
A trust has a complex legal structure which facilitates tax management, asset protection and wealth management. As such, it can be expensive to set up. Done well, however, it can help you achieve results no other business structure can compete with.
When you choose this business structure, a trust deed would outline how the business will operate, and a trustee will be appointed as the person or company legally responsible for its operation. Profits from the trust go to beneficiaries.
But because trusts are complex, many people don’t understand how they work and either rule it out or don’t take advantage of the opportunities available through this business structure. We have been advising clients on trust-related tax matters for more than two decades. We will help you determine if a trust is the best structure for your business.