There are several different structures commonly used in small to medium businesses. Which structure best suits you, may depend on various factors, including:
- the type of business being conducted or acquired
- your objectives in acquiring or expanding the business
- stamp duty, capital gains tax, or income tax position (see also Taxation)
- costs of registration or incorporation and annual administrative costs
- whether the business is or will be conducted in one State or more than one State
- asset holdings, whether in personal names or held by another entity (see also Asset Protection)
- whether you are acquiring appreciating assets
- who and how many people are involved in the business as owners and employees
- financing requirements of the business and any securities to be provided (see also Banking and Finance)
Each structure has its own advantages and disadvantages. Deciding which is best for you will require a careful assessment of the above issues, and many other factors.
The most common business structures are:
- Sole proprietorship – where a person operates a business in his/her own name with a business name registered in the relevant States where the business operates
- Partnership (see also Partnerships) – where two or more individuals (or trusts) set up a business and share the profits (losses) of the business in accordance with the partnership agreement
- Joint Venture – where two or more individuals (or trusts/companies) wish to operate a business without necessarily forming a company and do not wish to form a partnership
- A Proprietary Company – where up to 50 shareholders (or individuals/companies/trusts) can set up a business with the protection of limited liability. For small companies and unlisted public Companies we recommend a shareholders agreement
- Trusts – where individuals do not wish to own the business in their own names for asset protection reasons, or are seeking the flexibility to split the income with other family members
- Discretionary trust (non-fixed trust)
- Unit trust (fixed trust)
- Hybrid trust
- Superannuation Funds – where individuals have their own superannuation fund with money to invest or they do not wish to own the property in their own names
It is important to select the right structure at the outset. Once you have started the business using one of the structures, any change to the structure down the track, will have stamp duty implications, and impacts upon capital gains tax and possible loss of income tax benefits (such as tax losses).
You should consult P M Lee and Co. before setting up an entity to operate a business or restructuring an existing business or holding.
Please call Peter Lee or Graham Knight on 3435 4200 or email email@example.com if you have any enquiries.