When starting a business, it’s vital to choose a structure that would suit the needs of your operations. To do this, however, you need to have a thorough understanding of each structure type’s specific responsibilities. After all, the structure you end up choosing would directly affect your costs, asset protection, and the taxes you’ll need to pay. In Australia, there are four primary business structures:
This is the most straightforward and affordable structure to set up due to its limited tax and legal requirements. When you choose this structure, you’ll be liable for every single aspect of your business, which includes debts that it might incur.
Forming a company or incorporating would make you separate from your business, which would then make it a separate legal entity. This business structure would, however, require more paperwork and could be more costly to maintain. It would provide protection for your personal assets and only the assets of your company would be put at risk in case your business incurs debts or is sued, says one of the top business lawyers in Aitkenvale.
A partnership involves several individuals or entities that operate a business as partners or obtain joint income. With this structure, you and your partner would share management and control of your business. It isn’t a legal and separate entity, however, which means that all of you would be held legally responsible for all the business’ legal obligations and debts.
Don’t confuse a trust as an organisation. It’s a legal structure in which you could hold assets. To illustrate, you could form a trust that would hold all the assets of your business and then designate a trustee that would manage it. Typically, the trustee would be a company and your trust would offer protection for the assets held in the trust and limit the liability from running the business.
A trust is flexible when it comes to potential tax issues. On the other hand, it’s more complicated and costly to set up than a partnership or sole trader structure.
The good news is that if you’re uncertain as to what structure you want to choose you could change it as your business expands and its needs changes. Do note that restructuring would affect your ongoing costs, asset protection, liabilities and taxes. To that end, prior to selecting a structure for your business, get advice from an experienced business lawyer so that you could make a more informed choice.