Choosing a structure is more than setting up a business; it’s about safeguarding your interests, anticipating potential challenges, and preparing for growth. Different business structures are suited to different circumstances.
Selecting a suitable structure for your business is key to protecting your interest in your current situation and laying the right foundations for future growth. The following is a brief overview of different business structures:
A Sole Trader structure is when an individual operates the business under their name. They have full ownership and control over the business, and any business debts directly affect their personal financial stability. This setup has no legal distinction between the individual and the business.
A Partnership involves a group of two or more individuals who jointly run a business and distribute its income according to a partnership agreement. The partners collectively own the business and may all be liable for the partnership’s debts.
A Company is a separate legal entity owned by shareholders and managed by directors. While a company can offer some protection for personal assets, there are circumstances where directors can be held personally liable. Given a company’s ability to issue shares to various shareholders, it’s an ideal structure for businesses with multiple owners or those seeking investment.
A Trust is a unique legal construct where a trustee owns the trust assets for the beneficiaries’ benefit. The trustee could be an individual or a company, and there might be multiple trustees.
Beneficiaries’ interests can either be fixed – similar to shares in a company – or they might not have any defined entitlement at all. The costs, asset protection, and tax outcomes depend on the type of trust and the terms of the deed that establishes the trust.
It’s not unusual for some businesses to need a combination of these legal structures.