Deciding on a business structure is one of the key decisions you will have to make when opening up a new business. The structure of a business depends on the size, type of business and growth. Each business structure has a different impact on the operations, taxes, liabilities, start-up and ongoing costs, your control, and legalities of the business.
Common types of business structures
The four most common types of business structures include the following:
Understanding the key differences between these structures is important.
What is a sole trader business structure?
The sole trader business structure is the simplest structure and means the business owner is legally responsible for every aspect of the business. This includes all debts and losses, as they are not shared with another entity.
What are the benefits of a sole trader?
The negatives of a sole trader business structure are that you are personally liable for all debts and business liabilities, which means your personal assets are also at risk. Another downfall is that you are not allowed to split business profits or losses with any family members.
You are also personally responsible for paying tax on all business generated income.
What is a company business structure?
The company business structure is a separate legal entity, meaning the directors of the company are not liable for the company’s debts.
A company can provide many tax benefits, however this business structure comes with high start-up costs and in-depth reporting requirements.
What are the benefits of a company structure?
Other benefits include:
What is a business partnership?
Business partnerships are a legal relationship formed in a written agreement between two or more people to invest their money, time and effort into a business.
A business partnership is a great way to run a business, as long as the partners ensure they are on the same page and have the same ideals and expectations.
Before entering into a partnership, it’s important to set out the obligations and requirements of the members in a partnership agreement. The agreement will clarify the roles of each partner and the dispute resolution process.
In Australia, there are three main partnership approaches:
What are the benefits of a partnership?
The advantages of a partnership, as long as the partners share one vision include:
What are the negatives of a business partnership?
Business partnerships may have many benefits, but nothing comes without the disadvantages.
What is a trust business structure?
A trust is the obligation of a trustee (either person or company) to hold assets on behalf of the trust’s members, known as beneficiaries.
The trustee is legally responsible for trust and liable for the debts of the trust and will use its assets to meet any debts, however, the trustee is also responsible for shortfalls.
What’s the difference between discretionary and unit trust?
What are the benefits of a trust?
Under a trust your assets are protected, as the trustee legally owns assets. Which means if a beneficiary is sued or incurs debt, any litigators or creditors cannot repossess their property or income that’s held in the trust.
Other benefits include:
What are the disadvantages of a trust?
Contact TY Lawyers for business structure help
Are you thinking about opening up a new business and need help deciding on the type of business structure that’s right for you? Or are you an existing business and need help deciding on a new business structure?
Speak to the experts at TY Lawyers as we can help you decide on the best business structure. Please call on (02) 8007 0135 or contact us online.