Choosing a legal structure for your business is one of the most important decisions any new business owner will make. This will have a significant impact on key areas including payment of tax, control over the business, and legal liability. Show For this reason, it is a decision that should be made in consultation with experienced business lawyers in Melbourne. I such a way you will obtain expert advice on which legal structure will be most suitable for your business. Especially for the specific and unique requirements of your business. In Australia the main legal structures for businesses are:
The following seven factors differ across these main legal structures. Therefore, they are important to understand when choosing a structure for your business. 1. ControlAn important factor to consider when selecting your structure is the level of control you wish to have over your business. For example, if you wish to own and operate the enterprise completely alone then being a sole trader would be the most appropriate structure. Your choice of legal structure will affect what aspects of the business you will control and what aspects you will legally own. 2. Limitation of liabilityYour choice of legal structure will have important implications on your potential legal liability. Considering the extent you need to be protected from personal legal liability is important before choosing a business structure. This is because a considerable advantage of a complex structure such as a company is the protection from your personal assets becoming liable from any debts and losses incurred. 3. Cost and complexity of formation and legal structureThe different structures each have differing setup procedures, costs and complexities involved. For example, while a sole trader is simple to set up and requires few reporting requirements, a more complex structure like a trust involves strict reporting requirements and must be set up by a solicitor or an accountant. For other legal structures about disability claims and benefits, check here. 4. Flexibility and future needsIt is important when considering a legal structure to also reflect on where you envision your business going in the future. For example, the expansion of a trust is subject to legal penalties. So, it is not an appropriate structure to choose if expansion can be a goal in mind for your business. 5. Tax implicationsThe legal structure of your business will have significant effects on the amount of tax you pay and the kinds of tax that you must pay. For example, a sole trader enjoys tax benefits from being able to claim on a personal tax return and those in a trust do not pay income tax on profits. 6. Ongoing administrationWhilst a sole trader structure has few reporting and administrative requirements, complex legal structures such as a company have strict and difficult record keeping and paperwork requirements. In fact, an important consideration before setting up a complex legal structure is ensuring that you have the time, people, and ability to abide by the strict recordkeeping requirements that are legally enforceable. 7. Continuity of existenceIt is important to consider how you see the business coming to a conclusion. If you wish for the business to be terminated when you personally wish for it to end, then becoming a sole trader is the most appropriate option. However, if you wish to secure your family’s financial future, it is more appropriate to select a legal structure that does not come to an end if you are incapacitated. Choosing an appropriate legal structure is a very important decision to make for your business. It is therefore important to consult with an experienced business lawyer. In such a way you will ensure that your legal structure will suit your business and personal needs. Author Bio: Laura Costello is in her fourth year of a Bachelor of Law/International Relations at Latrobe University. She is passionate about the law, the power of social media, and the ability to translate her knowledge of both common and complex legal topics to readers across a variety of mediums in a way that is easy to understand. Choosing a business structure that best suits you is important. Different structures have different benefits and disadvantages when it comes to things like asset protection, taxation, flexibility and control and succession. If the wrong structure is chosen, this may require a costly restructure at a later date. The most common types of structures are sole traders, companies, partnerships and trusts:
At Butlers Business Lawyers, we believe there are five key factors to consider when choosing the best business business structure for your business. These are touched on briefly below. Your asset protection needs will depend on the risk profile of the business and the owners. Identify who the “at risk” individuals are in your structure. In professional practices, this will usually be the professionals running the business. In other businesses, this will be whoever is taking on the risks. What will happen to their assets if the business cannot pay its debts? It is important to consider how other individuals can enter and exit the business. Maybe you might start out on your own and add other investors or partners to the business later. Maybe you have a group of people already that you want to set up a business with. It is important that you choose a structure that suits the number of owners of the business, and can flex and adapt to later changes. Some structures are only appropriate for individuals, such as a sole trader or discretionary trust structure. Other structures, such as partnerships or companies, will be able to facilitate multiple members. Income tax, Capital Gains Tax, and Stamp Duty are high priorities when choosing an appropriate structure for a business. Each structure has distinct tax implications. Capital Gains Tax is a significant consideration in restructuring. While it is important to choose a structure that optimises taxation implications, you need to ensure that the choice of structure is not purely motivated by tax avoidance. Tax laws prohibit structures which are only devised for tax avoidance purposes. To ensure that your chosen structure is upheld by the courts, it must be able to be justified by other reasons, such as asset protection. Some structures allow you to split income. This is particularly useful if an owner’s partner earns less income, attracting less tax liability. However, if you are providing a personal or professional service, you will need to be mindful of the anti-avoidance personal services income rules. In particular, the ATO have issued warnings regarding the application of the rules to professional firms. Some industries can only use particular structures. For example, only a natural person may become a liquidator. The laws that regulate your industry or profession should be the starting point in choosing an appropriate structure for your business. In order to make an informed decision about the most appropriate structure for your business, you need expert legal and accounting advice. When consulting with your advisors, make sure that you highlight what is most important to your choice and plans for the future. Want to know what a new business structure could do for your business? Please don’t hesitate to contact our experienced Newcastle commercial lawyers at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.
When you first start a business, you'll need to decide on its structure. Your business structure identifies how you operate as a trading business. It'll affect things like:
You can change your business structure as your business grows or situation changes. Popular business structuresFor new businesses, the 3 most popular business structures are:
Other business structures include: Once you understand the difference between these structures, you can choose the best one for your business. Important differences at a glance
Choosing your business structureUse our step-by-step guide to help you decide. You can change your structure as your business changes so pick what's best for you now. |