There is no such thing as "one business structure fits all or even similar businesses" and getting the business structure wrong can cost you in the long run.
Don't simply register a company and think that it is the best structure for you because everyone else is using it and you are in a hurry or to save a few dollars at the start.
There are four main types of business structures used by small and medium sized businesses in Australia and in most cases using them in a combination may work in your favour in the long run. These four are:
- Company
- Trust
- Sole Trader
- Partnership
Below are the the features/differences of the four structures:
COMPANY
- Regulation: Heavily by ASIC
- Profit distribution/ Tax effectiveness: Not flexible
- Taxation: Company tax rate
- Liability: Limited
TRUST
- Regulation: Minimal
- Profit distribution/ Tax effectiveness: Flexible
- Taxation: At beneficiary level
- Liability: Limited to trust assets
SOLE TRADER/PARTNERSHIP
- Regulation: Minimal
- Profit distribution/ Tax effectiveness: Not flexible
- Taxation: At individual's (or partner's) marginal rate
- Liability: Unlimited
Your business is probably going to be your biggest source of income so give the business structure some thought and just don't rush into it.
Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)
