When it comes to starting a new business, one of the important tax and legal decisions you need to make is what structure you will choose.
There are four main structures which Aussie businesses can choose, being; Sole Trader, Partnership, Company and Trust. Each structure is different and has its own advantages and disadvantages.
This month, I wrote an article for leading start-up publication, Shoe String, whereby I discussed some of the key implications of each structure. The article can be read via this link, and I’ve included some of the main points below:
- There is no separation in business ownership between yourself personally and the business. This means there is unlimited liability – if your business can’t pay it’s creditors, your own personal assets could be up for sale
- It is fairly easy and inexpensive to set up
- There are minimal compliance requirements compared to companies and trusts
- Requires 2 or more business partners
- The partners share in the business assets as well as its liabilities
- Similarly to a sole trader it is fairly easy and inexpensive to setup
- Remember a friend in life does not always mean a friend in business – no matter how good your friendship, ensure everything is documented from the start
- A company has a director(s) as well as shareholder(s). The directors are responsible for the management of the company, whereas the shareholder(s) own the company. You can be both the director and the shareholder of the company, or you might have others on board in these positions.
- This is where compliance and setup costs start to get much more expensive. There are also annual regulatory fees which must be paid
- The costs to terminate the company can also be quite high
- The operation of a trust is generally a lot trickier than the other structures and
- There are three different types of trusts; being a unit trust, discretionary (family) trust and hybrid
- A company has a trustee(s) as well as beneficiaries. The trustee is responsible for managing the trust (just like a director of a company), and the beneficiaries are similar to shareholders in a company
If you have any questions about structuring your startup, get in touch with Nudge for a chat on 1300 068 343.