Business Structure – Which one is right for me?

“I’m thinking of starting a business, what structure should I do this in?”

‘I’m thinking of starting a business, what structure  This is a common question we are asked by our clients who are considering starting their own business! This is a great question because the structure in which you operate your business will have wide ranging consequences from how well your assets are protected to the overall tax payable.

It is important to understand the advantages and disadvantages of each structure and to consider the structure that is most suitable to you based on your circumstances

Some of the major items to consider include:

– Estimated future turnover and net profit

– Fees to establish and maintain structure

– If you have significant personal assets

– If significant business assets will be required and protected

– If the business activity to be conducted is in a high risk environment

– The ability to assess tax losses in the future

Different business structures will have their advantages and disadvantages. For example while operating as a sole trader you will have minimal establishment and compliance costs, the individual operating the business has unlimited liability and any profits will be taxed at their marginal tax rates. This could be unfavorable in the event of a litigation where your personal assets are at risk. As the the business becomes profitable you will likely be taxed at the highest marginal tax rates. In contrast, structures such as a company or a discretionary trust offer limited liability in the event of a litigation and may reduce the overall tax payable on large amounts of profit. These structures however however typically expensive to establish and have complex regulatory and compliance costs compared to the sole trader.

It is also important to note that circumstances may change and that after trading through a structure for a period of time another structure may become more appropriate. In this situation it may be ideal to consider a re-structure. The costs and benefits of a re-structure should be carefully examined to determine if the benefits outweigh any costs. We note depending on your personal circumstances there may be tax concessions or rollovers that may significantly reduce the costs of a re-structure.

Whether you are starting a business for the first time or have been operating a business for a period of time it is always important to assess or re-assess the most appropriate business structure that best suits your current circumstances. There is no cookie-cutter way of determining the best structure as the circumstances of each person and business are different.

If you are interested in starting a new business or considering a re-structure speak with one of our Directors today.

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