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SBS Accountants & Advisors

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Choosing a Business Structure

Posted on February 28, 2021 at 10:15 PM



If you are planning to start a business, there are certain factors you should consider before starting. The most crucial factor in choosing the type of business structure to conduct your business activity.

 There are four main types of business structures.

 

  • Sole Trader
  • Partnership
  • Company
  • Trust

 Your first goal should be to understand what characteristics each structure holds and whether it aligns to your business goals.

A business structure has various factors that can impact your decision in its selection. These factors are:

 Your Tax Liabilities

 Each structure has different tax liabilities to be fulfilled. Therefore, you must discuss this in detail with your accountant before deciding on which business structure you choose.

 Your Duties and Responsibilities as a Business Owner

 Each business structure assigns different kinds of responsibilities to its owners/ shareholders. If you choose a particular type of structure, you should review the details of the roles and responsibilities as the business owner.

 Administration Cost in Setting up a Business

 Each business structure has different cost factors associated with it. For example, a company structure has ongoing costs like yearly ASIC fees. Similarly, a business name has to get renewed after every 3 or 5 years depending on the yearly plan you chose at the time of business name registration.

 Your Personal Liability

 You must understand that every business structure has different kinds of liabilities involved. It means there are risks involved to affect your personal assets in case of losses incurred in your business.

 Profit Distribution

 There are different ratios of profit distribution in each structure depending on your stake in a business. However, as a sole trader, you are the only business owner, hence you will receive full profit made from the business.

 Legal Documentation

 Each business structure has various types of legal documents that govern the business activities. These legal documents provide a set of principles for businesses to operate according to the relevant law.

 For example, a trust is bound by a legal document of a Trust Deed. A company is bound by the constitution.

 However, as a sole trader, there are no specific requirements mentioned by ASIC to have a legal document. Though, it is advisable to keep track of all your financial records for at least 5 years.

 Changes in Business Structure

 

 Each business structure has some legal obligations so if you think about changing your existing business structure in the future, you must know how complicated it would be to do so.

 Each business structure comes with distinct levels of complexity about its legal status and the value it provides to its investors / owners.Each one has a unique set of goals when conducting a business, so it is essential to be mindful and aware of the technical details of each type of business structure.

 Itis always recommended to seek advice when planning to choose a business structure. CAll SBS Accountants and Advisors to analyse your circumstances and assist you in choosing the best business structure that would align with your goals.

Categories: Tips and Advice

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