When you are starting a business, there are several factors to consider when deciding on an operating structure for your business that have significant impacts on your tax, business and personal liabilities, asset protection and more.
You should consider:
1. Liability:
The level of personal liability you are willing to assume is an important consideration. Some business structures, such as sole proprietorships and partnerships, offer no protection for personal assets in the event of a lawsuit or debt, while others, such as trusts and corporations, offer varying degrees of liability protection.
2. Taxes:
Different business structures have different tax implications. For example, corporations are taxed as separate entities, while partnerships are typically taxed as pass-through entities, where profits and losses are passed through to the owners’ personal tax returns.
3. Ownership and control:
The number of owners and the level of control each owner wants are another important factor. Some structures, such as partnerships and sole proprietorships, offer more flexibility in ownership and management, while corporations have a more rigid structure.
4. Future growth:
Consider your plans for future growth of the business, as some structures may be better suited for expansion than others. For example, corporations can issue stock to raise capital, while partnerships and sole proprietorships may be limited in their ability to raise funds.
5. Regulatory requirements:
Different business structures may be subject to different regulatory requirements and reporting obligations, so it’s important to understand the rules that apply to your chosen structure.
Our team will consult with you to weigh the pros and cons of each option and choose the structure that is best suited to your specific needs and goals.
Do you know which business structure is the best fit for your business?
It is advantageous to determine the most appropriate structure at the outset of the business. As your business expands however, what was the most beneficial or economical structure at the beginning may no longer be appropriate. We have helped business clients identify the structure nest suited to their situation.
A trust is an effective business structure to protect assets as creditors cannot access assets as easily compared to other structures. There are many options of trusts which can be adopted to meet the needs and circumstances of clients. A trust is an effective tool in asset protection strategies.
A self-managed super fund (SMSF) is a private superannuation fund that is managed by its members for the purpose of providing retirement benefits. An SMSF can have up to six members, each of whom acts as a trustee or director of the fund's corporate trustee. SMSF members have control over the fund's investments and can choose to invest in a wide range of assets including property, shares, cash, and managed funds. Members can use an SMSF to acquire an investment or utilise the fund to invest into an asset. SMSFs do however require a higher level of responsibility from members as members are responsible for all aspects of the fund's management, including compliance with regulatory requirements
The simplest and most common form of business structure, a sole trader is a business that is owned and operated by one person. The owner is responsible for all aspects of the business and has unlimited liability for the business's debts.
Two or more people, companies or trusts share ownership and control of the business. There are two types of partnerships: general partnerships and limited partnerships. Relatively simple and inexpensive to establish, there are two types of partnerships. In a general partnership, all partners have unlimited liability for the business's debts. In a limited partnership, one or more partners have limited liability for the business's debts.
A company is a legal business entity that is separate from its owners. It is owned by shareholders, who elect a board of directors to manage the operations. Shareholders have limited liability for the corporation's debts.
Each type of business structure has its own advantages and disadvantages, and the choice of structure depends on factors such as the nature of the business, the number of owners, and the level of liability protection desired.
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