Choosing the Right Business Structure

Choosing the right structure for your business is an important decision that should be made after considering your needs and weighing up the pros and cons of the four main business types in Australia:
1. Sole Trader (Individual)
– Low set-up & ongoing costs
– Low reporting requirements
– Easy to re-structure
– Use their losses to offset against other income
– Completely liable if something goes wrong
– Personal assets are at risk
– Limited tax planning opportunities
2. Partnership
– Low set-up & ongoing costs
– Minimal reporting requirements
– Relatively easy to dissolve the partnership
– Partners share of any losses can be offset against other personal income
– Not a seperate legal entity
– Partners are legally liable for any debts
– Potential for disputes over profit sharing, control & direction
– Ownership changes will involve creating a new partnership
Note: Having a partnership agreement in writing would help to prevent any disputes.
3. Company
– Seperate legal entity
– Shareholders are generally not responsible for company debts
– Shareholders personal assets are protected
– Investor friendly
– It is easy to sell or pass on ownership
– You have the ability to carry forward losses
– There are tax benefits from the corporate tax rate of 25%
– Company profits can be reinvested for growth or paid out as a dividend
– Higher set up & running costs
– Higher reporting requirements
– Losses can’t be distributed to shareholders
– Directors can become personally liable for company debts if they breach their duties.
Note: Some businesses may have a requirement to trade using this entity type.
4. Trust
– Reduced liability, especially with a corporate trustee
– Assets are well protected
– High degree of flexibility for income distribution
– Good opportunities for tax planning
– Expensive & complex to establish & administer
– Can be difficult to dissolve or change once established
– Losses of a trust are carried forward
When considering a structure always ask yourself:
A) Does your business have a degree of risk?
B) Do you have personal assets that need protecting?
C) Are you earning good profits & looking to optimise your tax position?
We can help you with any questions you may have regarding your business structuring, it’s level of risk or asset protection and recommend a great tax accountant that we work closely with for any of your tax planning concerns.
So if this is something you need some help with get in touch today!