Choosing the Right Business Structure

Have you chosen the Right
Business Structure?

Choosing the right structure for your business is an important decision that should be made after weighing up the pros and cons of the four main business types!

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) What risk is your business exposed to?
B) Do you have personal assets that need protecting?
C) Are you earning good profits & looking to optimise your tax position?

So if this is something you need some help with get in touch today!