The pros and cons of your options
Whether you’re purchasing an existing business, or starting your own, one issue you’ll have to consider is which business structure to choose.
In Australia, that means choosing between a sole trader, partnership, trust or company structure.
While you can change your business’s structure in the future, it’s still worth taking the time to choose the best structure right from the start. That’s because the transfer duty payable if you transfer business assets to a new structure is commensurate with the value of your business.
When your business achieves success, its value will increase greatly – as will the transfer duty payable along with it. So it’s a great idea to do your research and select the right structure now.
In this news post, we’ll take a look at the options available to you, and suggest some questions to ask yourself when selecting the right business structure.
Are other parties involved in your business?
If you have other partners involved in the business, obviously this will affect your business structure options. For example, if you’re owning and running the business yourself, clearly a partnership won’t be an option for you – however a corporate structure (i.e. private company) remains an option.
Are you a start-up or purchasing an existing business?
If you’re buying the business as an asset, you will have to figure out your structure as to how you will own that asset. Find out more in our Premium Content download available here.
What business structure can you afford to set up?
When you’re starting out in business, your cash flow is critical – and it’s possible that you won’t have a lot of ready cash available to throw around!
That’s why the costs involved in the various business structures will probably play a big part in your decision making. As a guide:
A sole trader structure costs very little to set up. You simply pay to register your business name, and you’re ready to go.
A partnership costs a little more to set up than a sole trader, but not excessively so. Like a sole trader, you still pay for your business name registration. It’s a less expensive setup option than creating a company.
Note that it’s a very good idea to see a lawyer to have a partnership agreement drawn up. This will cover things like what happens in the unfortunate event your business fails.
Setting up a company is more expensive, but in many cases more appropriate and prudent business structure. While it means an investment of a couple of thousand dollars, there are really no disadvantages with a company structure, and it may offer you more options when it comes time to sell.
Should you consider a more sophisticated business structure?
If you’re looking for improved asset protection, or perhaps a more efficient tax setup, it may be worthwhile considering a more sophisticated structure for your business such as a family or unit trust.
Holding your business in a trust may give you additional asset protection in the event that your business fails.
Some trust structures also allow you to split the income from the business to beneficiaries of the trust may access lower tax rates.
The MDL Business Law team can help you with advice and assistance around setting up a family trust.
Talk to MDL for advice on the right business structure
If you’d like to know more about the business structures available to you, a conversation with McCarthy Durie Lawyers can help. We’ll take the time to understand your situation, and offer you straightforward advice about your options and the best way forward.
Contact us today on 3370 5100 or fill out the contact form here to get in touch.