5 things you
need to know
about
Startup Structuring
- The four most common business structures available to startups are a sole trader, partnership, company and trust. Out of all four options, setting up a startup as a company provides you with the greatest amount of flexibility and options to expand, offer equity, raise capital and hire employees. However, the right business structure will depend on your startup's needs.
- Choosing a legal structure for a new business requires trade-offs. A simpler structure (sole trader or partnership) is cheaper and easier to set up but less flexible in the long term. Setting up a company, and potentially a family trust to hold your shares, is more complicated and expensive. However, if your startup becomes very successful, you will benefit from your foresight.
- Many established startups are set up with a dual company structure (with a holding company and an operating company). Investors will invest in the holding company, which will own 100% of the operating company. This dual structure can ensure asset protection should the operating company be sued.
- Founders can use a discretionary trust to own their shares in their startup rather than owning them personally. A discretionary trust reduces the risks associated with being a director of a company and also provides for efficient tax planning.
- When setting up a discretionary trust, you will need to consider whether you wish to appoint an individual or corporate trustee. A corporate trustee requires you to incorporate another company and increases your setup and maintenance costs.
