Got a Business Idea? Time for Business Structure.
As a Tax Agent and Business Advisor, the most common question I get from budding entrepreneurs is; “What’s the right business structure for me?”. People have different circumstances, different reasons for going into business, so there is no single answer for anyone. Gathering the facts, assessing the pro’s and con’s, and weighing up the options with your circumstances, will ensure you are well equipped to make an informed decision.
Before setting up a business structure, you need to think about a few things:
- Am I “trying it out”, or is this my established career?
- What is my projected income?
- Is my venture risky enough to protect my assets?
Business structures can be simple or complex, cheap or costly. Most of the time, the “try before you buy” approach will lead you to establishing a sole trader business. This is the cheapest structure to setup & run, and is great to use when you’re assessing if your idea will be viable as a business. Bear in mind that this business structure will leave you the most exposed if things turn sour.
If there’s more than just you in the business, then partnership may be the next simplest structure to run. Profits are divided between the partners, and so are the costs of running the business. Note that the partners are jointly liable for any debts that the business incurs.
Although these two business structures can leave you exposed, you can lessen these risks with adequate insurance.
One of the most popular business structures around is a private company. A company is a separate entity, so it can transact in its own capacity. Companies can give some sort of asset protection, but the directors can also be held liable. A company pays a flat tax rate (currently 30%) on all profits.
A Family Trust is a great business structure for tax planning and asset protection. It is the most costly out of the 4 types to run, but probably the most flexible to use. Other various forms of trusts are Discretionary, Fixed, Unit and Hybrid.