Choosing the Right Structure for your Business

There are four common business structures to choose from; sole trader, partnership, company or trust.

The structure you choose will significantly affect your business’ legal and operational risk, asset protection, tax obligations, legal costs and clientele.

You can change structures to accommodate the growth of your business, but changing legal structures can often be very complex. It is important to think carefully early on about which structure is the right one for your business and best reflects your goals for the future.

Types of Different Business Structures

Sole Trader 
– Partnership
– Company
– Trust

Deciding on a Business Structure

When starting a business one of the first things you should consider is which structure is going to have the best long-term benefits and reflects your future goals. You will need to think carefully about:

  • the type of business you are going to run,
  • its risk profile,
  • plans for growth,
  • the involvement of others, and
  • how to come to decisions.

Each structure has different upfront and ongoing costs. A sole trader is the cheapest to establish, and more complicated structures, such as a trust with corporate trustee incur higher legal set up costs along with government fees.

The way that tax affects the different business structures will also factor into your decision.

The profits made by sole trader businesses are considered personal income and are taxed as such.

Companies pay, generally, 27.5% tax on their income but must keep financial records up to date and lodge annual tax returns and reports to ASIC.

Using a trust structure may allow you to plan your tax, by streaming distributions to beneficiaries on lower tax rates.

Key Issues

Are the costs of setting up and maintaining each structure realistic for your business’ type, size and the potential for growth?

What are the tax advantages/disadvantages of each structure?

How can different structures help with asset protection and personal liability?

What documents you will need to set up each structure.

 For more information about structuring your business, contact us today