So, you’ve decided to start your own business, congratulations!
You now need to begin thinking about a range of things, so it’s important to familiarise yourself with the preliminary stages of getting up and running. In this two-part series, we provide you with a succinct synopsis of everything you need to organise to ensure your new venture starts off on the right foot.
Establishing a Business Series | Part 1: Choosing a business structure
Which business structure should I go with?
Choosing an appropriate business structure is one of the most important decisions you will make as a business owner. With all considerations in mind, doing so can become quite complex. It is, therefore important to seek professional advice to determine the avenue that best suits you and your business’ needs.
In Australia, there are generally four main business structures: Sole Trader, Company, Partnership and Trust. Each structure will affect different aspects of your business in a different way. For example, your taxation liability, your personal liability if things go wrong and the level of control you will have over the business in operation.
Sole Trader
A sole trader is the simplest and least expensive form of business structure, both to set up and to operate. As a sole trader, you are able to take full control of every aspect of your business, including your assets and day-to-day business decisions. However, sole traders must take the good with the bad. Such a high level of control also imposes personal liability on any debts incurred by the business, with the structure offering very little protection over, and the distinction between, your personal and business assets.
Partnership
Partnerships are often an ideal structure if you have a trusted business partner whom you work well with. Under a partnership, two or more individuals or entities will incur income jointly and have shared control over the business’ day-to-day operation. Although the costs associated with establishing a partnership are relatively low, the structure does not enjoy the benefit of being a separate legal entity from the partners themselves. Therefore, there is a risk of claims made against you and your partner’s personal assets should things take a turn for the worst, and you are heavily reliant on all partners acting in the best interests of the partnership.
Company
A company structure is on the more complicated and expensive side. There are higher start-up and operational costs associated, and compliance with a greater level of legal and reporting obligations are required. Fortunately, unlike a sole trader, a Pty Ltd company is a separate legal entity with the ability to incur debt and litigate in its own right. Under the structure, members will not be held personally liable for the company’s debts, meaning personal assets are not at risk in the event of a dispute. However, it is important to note that company directors may be held personally liable if found to be trading and continuing to incur debt, whilst insolvent or if they have provided personal guarantees.
Trust
A trust is established through a formal, carefully drawn trust deed which imposes an obligation on a nominated individual or company (‘the trustee’) to hold the business’ assets for its beneficiaries. Liability is therefore placed on the trustee for any debts incurred by the business, rather than the beneficiaries. As well as this, you may consider operating your business under a trust in order to reap the taxation benefits the structure offers. As the trust itself is not required to pay tax, and income is distributed to the beneficiaries, effective tax planning may mean you are able to take advantage of each beneficiary’s tax-free threshold.
Want to know more?
If you are unsure of the structure that would best suit you, CPC Lawyers are here to help! Our team of experienced commercial lawyers are committed to familiarising themselves with the characteristics of your new business to provide informed legal advice on the best way forward.
Contact us:
Book A Consult here
Call: (08) 7325 0219
E-mail: info@cpclawyers.com.au
Stay Tuned!
Be sure to keep an eye out for Part 2 of this series, where we discuss the key legal documentation every new business owner needs to have in order to operate.