When starting a business, it is very important to choose the business structure that best suits your needs. There is a range of factors to be considered when choosing a structure and these will vary according to each case. Please collect as much information necessary to ensure that all the relevant factors are considered.
Your accountant should explain in writing to you what the advantages and disadvantages of the type of entity chosen will be.
The following 4 key factors should be take precedence:
- Asset protection Protects the owner’s assets as well as the venture in order to manage any potential risks
- Tax minimization Making sure the income derived as a result of the business is taxed at the lowest possible rate and that the maximum amount of deductions can be claimed
- Capital gains tax (CGT) Reduce the tax from the profit – this can be achieved by a structure that allows the CGT 50% discount and the small business concessions
- Simplify administration Any structure put in place increases other costs such as:
(a) the cost of purchasing the entity
(b) the cost of initial registrations
(c) the cost of ongoing renewals
(d) the cost of accounting and tax return requirements
Additional factors you will have to consider to make the right decision are:
• Simple of understanding about your structure
• Borrowing capacity
• Legal requirements
• Admission of partners
• Succession planning
There are 4 main business structures commonly used by small businesses in Australia:
- Sole trader
Each type of structure has different responsibilities and typically, costs and complexity increase as you move from sole trader to partnerships to company or trust. You are not locked into any structure and you can change the structure as your business changes or grows.
This Table-of-Comparison-for-Investment-Structure shows the main features of the different structures. If you would like an even simpler (one page) explanation of the advantages or disadvantages of each, please give me a call on 02 9153 5359 and I will be happy to send you a copy.