Sort your Business Structure
When setting up or restructuring your business, there are several potential business structures you can choose. The most common types of business structures available to business owners are sole trader, partnership, company and trust.
The type of business structure you choose will depend in a number of factors, including the size and type of your business, as well as your individual business needs and how you hope to grow your business in the future. Because of this, it’s important to fully research the different business structures, remembering that there are advantages and disadvantages for each.
Sole trader businesses are the simplest and easiest type of business structure to set up. As the name suggests, sole traders are individual business owners who have sole control over the business. Other advantages include less red tape and paperwork, and fewer reporting requirements. Plus there’s no need to register a business name, as you can simply use your own. However as a sole trader there is unlimited liability, so if things go wrong all debts or claims against your business have to be paid out of your own pocket. Also it can be harder for sole traders to get finance, and on a personal level, it’s harder to take time off and not worry about work.
In terms of business structures, a partnership is a business run by two or more people – though not more than 20 all up. Partnerships are also relatively easy and inexpensive to set up and run, and since all partners jointly own the business and its assets, the responsibilities involved in running a business are also shared. Partnerships make it easier to secure financing when compared to sole traders, and you can benefit from a combined wealth of experience and skills. Finally, if you go into a partnership but later want to exit the business, it is easy to dissolve the partnership and regain your share of profits. There are disadvantages as well, however, including the fact that partners often disagree overs issues like administration of the direction the business is headed in. Each partner is equally responsible for liabilities, regardless of how much of the business they own, and change of ownership can be difficult, usually requiring a whole new partnership to be set up.
A company is a separate legal entity from its owners, which can hold assets and conduct business in its own name. Shareholders own a company, while directors run it. As a business structure, a company offers shareholders limited liability and responsibility. Company structures are well understood and are able to raise significant capital. It is easy to pass on ownership of a company should your circumstances change. However there are significant costs involved in setting up and maintaining a company, and there is far more paperwork, red tape and reporting involved compared to other business structures. Also shareholders have limited control over company affairs.
In comparison to a company, a trust is not a legal entity, but is an entity which holds property or funds for the benefit of others. A trust is run by a trustee, who conducts business on behalf of the beneficiaries. The trustee is responsible for any debts incurred, meaning reduced personal liability. It is also very easy to pass on ownership in a trust. A trust can be expensive and complex to set up and maintain, however, and can be difficult to change or dismantle.
If you need advice when comparing business structures, the experienced team of lawyers and accountants at Quinns can help. You can contact us at The Quinn Group on 02 9223 9166 or fill out an online enquiry.