Which Business Structure Is Right For You?
One of the most important decisions you’ll have to make when first starting out your business is choosing the right business structure. Why? Because it significantly affects your businesses legal and operational risk, asset protection, tax obligations and legal costs.
Whilst it is possible to change structures down the line when your business is more established, this can be a complex and costly process. Therefore, its best to choose the right structure from the ‘get go’that reflects your businesses future goals.
There are four main business structures to choose from:
Sole Trader
Partnership
Company
Trust
Read on to see which business structure is best for you!
TYPES OF BUSINESS STRUCTURE
Sole Trader
Sole trader is the simplest structure and cheapest to get started with., As a sole trader, you operate the business under your name and are solely responsible for the debts of the business. It’s important to note that this structure is not flexible and may not accommodate your business if it grows.
Partnership
A partnership is for two or more people who are going into business together. Setting up a partnership is easy and relatively cheap. However, partners are jointly responsible for the debts of the business and affords no asset protection. It is critical to consider who you enter into a partnership with as partners can become equally liable for the other partners’ actions.
Company
A company is its own legal entity and can incur debt, sue and be sued. The company’s shareholders (the owners) are generally not responsible for company debts which makes it suitable for higher-risk businesses. If you’re looking to grow and scale your business, this structure may be best suited for you, as you have the ability to raise capital and grow via the issuing of shares.
Trust
A trust is a structure where a trustee carries out the business on the behalf of the trust’s members. It is the trustee’s job to distribute profits to the beneficiaries of the trust, as per the trust deed. Individuals or companies can act as trustees. If the trust has an individual trustee, the trustee is personally liable for the trust’s debts. On the other hand, if the trust has a corporate trustee, its shareholders receive protection by the company’s limited liability. This structure may not suitable for businesses that require profits to help scale, as a trust must distribute any income, or the trustee is taxed at the top marginal tax rate of 49%.
WHAT BUSINESS STRUCTURE IS BEST FOR YOU?
When deciding on a business structure, you should carefully consider the below:
the type of business you are starting
its risk profile
if others are going to be involved
your plans for growth
costs associated with each business structure
the way that tax affects each business structure
HOW CAN IRON ADVISORY HELP YOU?
We can assist you in choosing the right structure for your business, depending on what you do and what your future goals are. This way you can ensure you have everything set up correctly from the start!
If you’d like a helping hand, you can book a free consultation with us!