That depends on three key considerations:
- The nature of the business
- The scale of the business
- What’s most important to you
Running a business involves risk, but some businesses (such as medical services or supply of food or machinery) are more risky than others (such as interior design or supply of books). The riskier the business, the more important it is for the owners and operators to protect themselves and their personal assets from the claims of customers and creditors.
A small, low risk business will in most cases be able to function satisfactorily with a simple business structure – e.g., an individual operating as a sole trader. However, a larger, riskier business is likely to require a sophisticated business structure, perhaps involving one or more companies and/or trusts.
When working out how to structure a particular business, the main factors that need to be taken into account are:
- How the participants’ shares in the business will be regulated
- Control of operations and voting on decisions
- Limitation of liability to others
- Taxation considerations (particularly income tax and capital gains tax)
- Funding of the venture (having regard to taxation issues)
- Profit shares and distribution of profits
- Statutory licensing and record keeping requirements
- Set up and running costs (including filing fees and taxation returns)
Each factor may have benefits and disadvantages. Sometimes it is necessary to make compromises, for example accepting higher running costs for a business structure that offers better protection against creditors’ claims. So one needs to think through the issues and establish an order of priority of importance.
Not surprisingly, there’s no ‘one size fits all’ structure that suits all businesses. Usually a structure has to be created to suit each case – and then adapted to changing circumstances as the business develops.
If you would like to know more about this or anything else to do with setting up or changing a business structure, call us and speak to one of our accredited business law specialist solicitors on +61 (02) 9966 1799.