When launching a startup, choosing an appropriate business structure is one of the most important decisions founders will make. The type of structure will affect not only how the startup operates, but also the ease of obtaining finance.
At LegalVision, we have assisted thousands of startups and businesses with structuring their company. Our startup team can assist with:
providing advice to founders on company structuring and how to structure their personal shareholding;
providing advice on share vesting;
drafting and reviewing shareholders agreements;
setting up a dual company structure (holding company and operating company);
setting up a discretionary or family trust; and
structuring employee share schemes and option plans.
LegalVision’s experienced team of startup lawyers can assist both early stage startups with structuring advice as well as later stage startups with restructuring. When it comes to structuring your company, we understand the importance of minimising risk and cost while maximising flexibility for your startup as it grows.
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5 Things You Need to Know About Startup Structuring
1The four most common business structures available to startups are: 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.
2Choosing a legal structure for a startup 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 — but if your startup does become very successful, you will benefit from your foresight.
3Many established startups are set up with a dual company structure (with a holding company and operating company). Investors will invest in the holding company, which will own 100% of the operating company. This dual structure can protect the assets of the business from risk of seizure, should the operating company be sued.
4Founders 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.
5When 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.