Considerations when Choosing the Right Legal Structure for Your Business
As a business owner, one of the most important decisions you will make is choosing the right type of legal structure for your business. The type of structure you select will not only have an impact on how much you pay in taxes, it will also influence the amount of paperwork your business is required to do, the personal liability you face and your business’s ability to raise capital.
Types of Business Structures
There are four main structures commonly used by small businesses in Australia:
- Sole trader: An individual operating as the sole person legally responsible for all aspects of the business.
- Partnership: An association of people or entities running a business together that are legally responsible for all aspects of the business.
- Company: A legal entity, separate from its shareholders.
- Trust: An entity that holds property or income for the benefit of others.
Things To Consider When Restructuring
When deciding whether or not to restructure your business it is important to consider the following:
- Why are you restructuring? There could be a number of factors, however, the most common reason is linked to business growth and expansion.
- What kind of structure are you changing to? It is vital that you investigate each option carefully, keeping in mind that there are advantages and disadvantages to each structure.
- Do you have a business plan for your new structure? It is important that your business plan reflects the new structure, and outlines the goals and objectives of your business.
- Do you need to update or create a share/unit holder or partnership agreement or corporate governance structure? If you are adding stakeholders/shareholders to your business, it needs to be clear to everyone what the terms and conditions are.
When deciding on the best business structure you should begin with the end in mind! This is because your business structure can determine the following:
- The licenses you require
- how much tax you pay
- Your potential personal liability
- How much control you have over the business
- Ongoing costs and volume of paper work for your business.
If you want more information about the most appropriate business structure for your business contact us at Advivo on 07 3226 1800 and we will arrange a no-obligations consultation. You can also use our Contact Form to enquire.