If you are a business looking to grow, it may be a good idea to consider changing your business structure. There are four main business structures: sole trader, partnership, company and trust, each with their own benefits for your business. In this article, we will briefly examine the types of business structures, helping you to assess if you should move to a new business structure to grow your business.
A sole trader is the most cost-effective and simple business structure. It involves an individual running a business wherein they are the owner; controlling and managing it. A sole trader is responsible for all losses and debts of their business, not able to share these with other individuals. An advantage of being a sole trader is that you are your own boss and are in complete control of the business. You have complete autonomy and privacy regarding your own business and how it is run. In essential terms, the benefits are that it is simple to set up and operate, gives full control of assets and business decisions, has fewer reporting requirements and is generally a low-cost structure.
A partnership is all about the notion of ‘two heads are better than one’. It is a business structure where a group or association of people distribute losses and income between them; running their business as a team. It is relatively inexpensive to establish and generally provides more capital for the business. There are notably three types of partnerships: general, limited and incorporated limited.
A company is a separate legal entity; involving higher establishment and administration costs compared to a partnership or sole trader structure. Members of a company are not liable for company debts in their capacity as a member. As companies are expensive and complicated to set up, they generally suit people who expect their business income to be highly variable and want the option to use losses to offset future profits.
Finally, a trust as a business structure is perhaps the most difficult to understand. In essential terms, its’ benefits are reduced liability, the protection of business assets and flexibility of asset and income distribution.
It is vital to note that each structure has different reporting requirements and so it is important to understand the obligation of each business ‘type’. For example, if you are changing from a sole trader to a company or trust, your business becomes a separate legal entity from you. This means you will need to report income for the correct entity, especially in the year that the structure changes, account for private use of business assets, such as the company car, keep private expenses separate to business expenses and maintain separate business and personal bank accounts.
We at the Quinn Group are happy and able to assist you in reviewing your current business structure. Please feel free to contact our team of experienced accountants and lawyers by clicking here to submit an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment.