Business Structures and Types

Business Structures: How to Choose the Right One for Your Business

One of the essential things you’ll have to think of when starting a business is its structure. Depending on how you want to run it, you may think about putting up a proprietary limited company, a partnership, or a trust. You may also consider becoming a sole trader.

Each type of structure has various implications on asset protection, tax liabilities, and operating costs.

Sole Trader

The simplest one among the four business structures, sole trader lets you control and manage your business the way you want to. You could operate under a registered business name or your name.

The application process for this type of business structure is also more straightforward than other business types. Furthermore, the cost to set it up is minimal.

When choosing to become a sole trader, think about asset protection. Because your business isn’t a separate legal entity, your personal assets are at risk. Should you run into some legal problems, you could end up using your personal assets to pay for penalties, taxes, and other costs.

Partnership

To form a partnership, find at least one person or a maximum of 20 people to start a business with. Similar to a sole trader, a partnership isn’t a separate legal entity. Additionally, the cost of starting this type of business is relatively low.

In a partnership, you and your partners could pool all your resources together to operate the business. However, like a sole trader, a partnership offers little protection for your personal assets. Because you are merging your resources with your partners, you could also be liable for your their debts.

To minimise liabilities, consider having a limited partnership. In this structure, your partners are only passive investors and won’t have to be part of managing your business.

Proprietary Limited Company

A proprietary limited company is a separate legal entity with its own rights, shareholders and directors. Unlike a partnership and sole trader, this structure offers better protection for your personal assets. However, the cost of setting up and operating a proprietary limited company is higher than the cost of the first two types of business structures mentioned above.

Trust

A trust is a business structure where a trustee is responsible for managing your assets. The trustee makes decisions, runs the business, pays the bills, and distributes profits. This structure offers greater asset protection and provides some tax benefits.

Do you need help choosing the most suitable structure for your business? Sutherland Reid & Farrar can help. Our team could also assist you in preparing a business plan, assessing your finance requirements, and applying for relevant registrations with the ATO.

For more information on our business services, you may call us at 02 6752 9700 or fill out our contact form.

 

 

 

 

 

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