One of the most important decisions you must make before starting a business is in what structure your business will be operating under. This will be reflected in all facets of your business, so you should spend time understanding the implications of each structure before making a decision.
A sole proprietorship business structure is a type of business with only one owner. However, that owner has complete authority and control over every aspect of the business. Sole proprietors are generally easy to set up as they do not need to be registered as a business, but you may need a license to operate (depending on the field).
There are liabilities that you need to be aware of when it comes to undertaking a sole proprietorship. A sole proprietor’s income through the business is treated as personal income. However, if the business runs into debt & bankruptcy, your personal and business assets will be at risk as the owner is accountable.
In summary, with a sole proprietorship:
A partnership is a business structure comprising 2 or more people who distribute income or losses between themselves.
There are 3 main types of partnerships:
Individual states and territories have different laws regarding partnerships. Following these according to what is set out for your state is essential.
In a partnership:
A company as a business structure is a separate legal entity, unlike a sole trader or a partnership structure. This means the company has the same rights as a natural person and can incur debt, sue and be sued. All directors of a company must have a Director ID.
As a member, you’re not liable (in your capacity as a member) for the company’s debts. Your only financial obligation is to pay the company any amount unpaid on your shares if you are called on to do so. However, directors of the company may be held personally liable if found to be in breach of their legal obligations.
Companies can be expensive and complicated to set up and generally suit people who expect their business income to be highly variable and want the option to use losses to offset future profits.
Companies and directors have key legal and reporting obligations they must comply with. Some of the more common obligations include:
A company, in summary:
In a trust structure, a trustee holds your business for the benefit of others (the beneficiaries).
A trustee can be a person or a company an is responsible for everything in the trust, including income and losses. They are the ones legally responsible for its operations.
Trust structures are expensive and complicated to set up, and are generally used to protect the business assets for beneficiaries. The trustee decides how business profits should be distributed to the beneficiaries.
In summary, trusts:
Setting up a trust is best done with a licensed professional to assist with the registrations and documentation.
It is best to consult with a professional business adviser before deciding on a structure for your business, as they can provide more information based on your specific needs and circumstances.
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