5 Things You Need to Know About Business Structures
1Structuring your business correctly is a crucial first step in ensuring future success. If you choose an appropriate structure at the outset, then you’ll be in a position to concentrate on growing your business without having to deal with the distractions of restructuring your business down the track. The main business structures used in Australia include sole trader, partnership, company and trust. Each of these business structures has advantages and disadvantages.
2It is simple, cost-effective and easy to set up as a sole trader. If you run a one-person service business, then setting up as a sole trader may make a lot of sense. However, two key issues with this structure are that the business revenue is treated as personal income, and your personal liability is not limited.
3A partnership structure may make sense if you’re going into business with a trusted friend or family member. It’s simple to set up, but generally each partner has unlimited personal liability for any debts or obligations incurred by the partnership.
4A company structure is the most popular structure for businesses looking to grow and scale. This structure is flexible, cost-effective and easy to set up. Revenue is earned by the company, rather than the shareholders, therefore there may be company tax benefits, and the liability of shareholders is limited. Just remember that company accounts and taxes must be attended to, including quarterly BAS.
5Finally, a trust structure could be a good option if you’re looking to minimise personal risk and stream income. Setting up a discretionary or unit trust is not overly complex and can provide a great solution for the right business.