Business Structures Made Easy! Part 1: The Basics
One of the most important decisions a business owner needs to make (after the name of the business of course!) is the choice of business structure. In fact, getting this choice right is so important that we begin the analysis of every potential client with their proposed business structure and we then work out from that point.
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Choosing Your Business Structure
The choice of how to structure your business depends on a number of factors:
- The type of business you operate;
- Your personal financial circumstances;
- How large you intend to grow the business; and
- Whether you are building the business to operate or to sell.
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A basic comparison of the most common business structures is provided below: |
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| Cost to establish and operate |
Low |
Medium |
High |
High |
| Complexity |
Simple |
Moderate |
Complex |
Complex |
| Limited Liability |
No |
No |
Yes |
Yes (with a corporate Trustee) |
| Do I receive full profits made from the business? |
Yes |
No |
No |
No |
| Can I employ staff? |
Yes |
Yes |
Yes |
Yes |
| Do I have to pay myself superannuation? |
No |
No |
Yes |
No |
| Can I change the legal structure easily? |
Yes |
No |
No |
No |
| Ability for tax planning e.g. income splitting? |
No |
Limited |
Limited |
Yes |
| Is it easy to raise capital? |
No |
No |
Yes |
Yes |
| Is it easy to dissolve or exit? |
Yes |
Yes |
No |
No |
Each structure has advantages, disadvantages and responsibilities which need to be considered before making a decision. While it is possible to change the structure as the business grows or your circumstances change, getting the structure right in the first place can avoid any unnecessary tax and administration costs. Your accountant or business adviser can help you make the right choice for your business.
Where Do You Go from Here?
Choosing the right business structure is extremely important. We strongly recommend seeking professional advice before making a final decision. We offer a wealth of experience in business structuring and can help you make the right choice now and avoid problems later on.
For additional information please look out for our future articles which look at each of the business structuring options in more detail.
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