5 Biggest Business Structure Mistakes

Summarise with: ChatGPT Claude Perplexity Microsoft Copilot

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Table of Contents

• 1. Picking the Wrong Structure
• 2. Over Structuring Your Business
• 3. Going for the Cheapest Structure
• 4. Not Having a Proper Agreement
• 5. Not Seeking Professional Advice
• Conclusion

Starting a business is an exciting and challenging time. You need to answer hundreds of questions – what will you name your business, what will you sell, who is involved and critically, what business structure is best suited to your needs. Below, we set out five of the biggest mistakes you can make, and how you can avoid them.

1. Picking the Wrong Structure

Your business structure is your business’ foundation, so it’s important to get it right. Whether you set up as a sole trader, partnership or a company will depend on the nature, size and growth plans of your business. Before deciding, speak with your lawyer and tax adviser to understand better the pros and cons of each structure.  

2. Over Structuring Your Business

If you are just starting up, keep it simple. Most small businesses begin small and then change if and when they outgrow their business structure. It’s easier to move from a sole trader to an incorporated company than the reverse. Typically, simple structures are flexible and enable you to make any necessary changes quickly. If you overcomplicate your business structure from the outset, you could unnecessarily spend your time, effort and resources.

3. Going for the Cheapest Structure

On the opposite end of the scale is opting for the cheapest structure, that doesn’t align with your commercial goals and plans for growth. Understandably, some businesses want to start small, particularly if they are working on a small budget. It’s important to remember, however, that whilst setting up as a sole trader may be cheap and straightforward short term, it offers the least asset protection as you would be personally liable for all of the business’ risks and debts.

4. Not Having a Proper Agreement

Commonly, you will need to bring on board other partners or investors. Whether they are your friends, family or another interested party, don’t overlook formalising the relationship with a legal agreement. Although you may think it unlikely at the beginning, many business relationships break down. So it’s important that all parties enter into a comprehensively drafted agreement outlining rights and obligations, as well as how they can exit should anything turn sour.

5. Not Seeking Professional Advice

You may be a leading psychologist, embarking on opening your first clinic. Or a Michelin star rated chef expanding your restaurant empire. Even though you may be an expert in your particular field or industry, always make time to consult with legal experts to help you set up your business. Choosing an inappropriate business structure, or failing to understand compliance and what risks and liabilities your business attracts could lead to future complications.

Conclusion

Failing to plan your business can lead to unexpected and avoidable obstacles in the future. If you have any concerns regarding your business structure, ask our business lawyers to assist you in understanding the benefits and risks associated with each structure.

Questions? Let us know on 1300 544 755.