It’s a huge step to start your own business and although it’s an exciting time when you take the plunge, it can also be overwhelming with so many practicalities to consider. One of the first things you’ll need to decide is what legal business structure to use and this depends on a number of factors including the size of your business, your business goals and your individual circumstances.
Today, we’ve outlined for you the main business structures that you can choose from for your business.
What are the different business structures?
Sole Trader
A sole trader is the simplest business structure and is common for small businesses. There are few formalities you need to consider and it’s easy to set up. If you operate as a sole trader, you control and manage your business and take all legal responsibility. Although it means you retain control of any assets, it also means you take full responsibility if something goes wrong.
Partnership
A partnership is an association of two or more people who run their business as partners or receive a joint income. It is inexpensive to set up and although formal partnership agreements are common, they’re not essential. Partners jointly own the assets and liabilities of the business which means that any debts are shared equally, regardless of whether you are personally responsible for the debt.
Company
A company is a separate legal entity and is regulated by the Australian Securities and Investment Commission (ASIC). A company is controlled by directors but owned by shareholders and is much more complex to set up. A company can be sued, or sue, but company directors can be held responsible for certain offences or if they are negligent.
Trust
A trust is when a trustee (an individual or company) carries out business on behalf of the beneficiaries of the trust. It’s common for family businesses to set up as a trust so family members can be beneficiaries without having involvement in the business. A trust can be expensive as a formal deed is required and a yearly administrative task needs to be undertaken.
Making the right decision
Your business structure will impact on who can make important decisions, tax advantages and disadvantages, how profits and losses are shared, legal obligations and costs which is why it’s important to make the right decision. Because of the impact your legal business structure has, it’s a good idea to speak to a professional about your options so you know you’re making the best decision for your business. You can always change your structure as your business changes so pick what’s best for you now.
Once you’ve chosen how to structure your business and you’re ready to get going, remember to have the right insurance package in place to protect your business financially. Speak to your insurance broker who can advise you of the right level of cover for your needs.
The information above is of a general nature only and should you need advice please consult your insurance broker. Contact Elliott Insurance Brokers on 1300 635 315 today to get a fast insurance quote or to discuss your business insurance options.
