Business Structures

Business Structures Made Easy! Part 1: The Basics

Business Structures Made Easy! Part 1: The Basics

One of the most important decisions a business owner needs to make (after the name of the business of course!) is the choice of business structure. In fact, getting this choice right is so important that we begin the analysis of every potential client with their proposed business structure and we then work out from that point.

Business Structures Made Easy

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Choosing Your Business Structure

The choice of how to structure your business depends on a number of factors:

  1. The type of business you operate;
  2. Your personal financial circumstances;
  3. How large you intend to grow the business; and
  4. Whether you are building the business to operate or to sell.

A basic comparison of the most common business structures is provided below:

Sole trader

Partnership

Company

Trust

Cost to establish and operate

Low

Medium

High

High

Complexity

Simple

Moderate

Complex

Complex

Limited Liability

No

No

Yes

Yes (with a corporate Trustee)

Do I receive full profits made from the business?

Yes

No

No

No

Can I employ staff?

Yes

Yes

Yes

Yes

Do I have to pay myself superannuation?

No

No

Yes

No

Can I change the legal structure easily?

Yes

No

No

No

Ability for tax planning e.g. income splitting?

No

Limited

Limited

Yes

Is it easy to raise capital?

No

No

Yes

Yes

Is it easy to dissolve or exit?

Yes

Yes

No

No

 

Each structure has advantages, disadvantages and responsibilities which need to be considered before making a decision. While it is possible to change the structure as the business grows or your circumstances change, getting the structure right in the first place can avoid any unnecessary tax and administration costs. Your accountant or business adviser can help you make the right choice for your business.

Where Do You Go from Here?

Choosing the right business structure is extremely important. We strongly recommend seeking professional advice before making a final decision. We offer a wealth of experience in business structuring and can help you make the right choice now and avoid problems later on.

For additional information please look out for our future articles which look at each of the business structuring options in more detail.