Legal Liability

Different business structures offer varying degrees of personal liability protection. Sole traders and partnerships expose you to unlimited personal liability, meaning your personal assets could be at risk if the business faces legal issues or overdue debts. Companies and trusts provide more liability protection, shielding personal assets from business obligations.

Tax Implication

Business structures have different tax implications. Sole traders, partnerships, and trusts pass through profits and losses to the owners, who report them on their personal tax returns. Companies, however, are subject to company tax rate, and their owners will pay individual taxes on dividends or salaries paid to them.

Ownership and Control

Consider who will own and manage the business. Sole traders and partnerships offer simplicity and full control to the owners. Companies and trusts allow for multiple owners and can provide mechanisms for distributing ownership, such as shares or membership interests.

Cost and Complexity

Evaluate the costs and administrative requirements associated with different business structures. Sole traders and partnerships are typically straightforward and have fewer formalities. Companies and trusts usually require annual ASIC renewal fees, annual tax return and accounts, and additional legal and accounting expenses.

Future Growth and Funding

If you plan to seek external funding or have ambitions for significant growth, certain structures may be more attractive to investors or lenders. Companies, for example, offer the ability to issue additional shares and have more established structures for raising capital.

Exit Strategy

Consider your long-term plans for the business. Some structures make it easier to sell or transfer ownership, while others may have more restrictions or complexities.

Legal and Regulatory Requirements

Companies and trusts require documentation such as constitution and trust deed at the time of establishment as well as require ongoing reporting requirements. Sole traders and partnerships are a lot simpler and straightforward.

It is crucial to consult the advisors who can provide personalized guidance based on your specific circumstances. Feel free to contact us to discuss your circumstances and we can help you weighing up these factors and making an informed decision that best suits you.