Corporate structuring and restructuring
If you are starting a new venture or in a period of growth it is vital to consider what structure is best for your business needs. C Legal & Co regularly assist clients in assessing the legal risks, tax implications, level of asset protection, and legal costs associated with each option, so you can make the most informed decision.
Four main business structures:
- 1Sole Practitioner/Trader
Establishing a solid foundation will provide your business with the best opportunity to grow and succeed. We can help you assess what structure is best for your short, medium, and long-term goals, so you can get on with what is important to you – growing your business.
Each structure has its advantages and disadvantages
You have absolute control over your business, you keep all the profits, start-up costs are low, establishing and operating the business is simple & you can change this structure in the future quite easily.
You have unlimited liability for debts, the ability to raise capital is limited, the day to day decision making is yours, employing others may become challenging, and all profits you make are taxed at your marginal rates.
Limited liability and increased personal asset protection, tax capped at the corporate rate, allows for business expansion, well-defined shareholder agreements and exit protocols, able to retain profits.
Setting up a company is costly, ongoing Annual Review Fees, annual tax accounting fees, and ongoing administration costs, if there are other directors and shareholders this means less control, business acumen is required to meet ASIC’s reporting obligations, no capital gains 50% discount on sale
A trust provides asset protection and limits liability to the business, the trustee of the trust controls the assets, trusts are very flexible for tax purposes, beneficiaries are generally not liable for trust debts and only pay tax on income received from the trust at their own marginal rates.
Setting up a trust is costly as they are complex legal structures, so you should obtain legal and accounting advice to set up a trust, trustees have strict obligations to manage assets for the beneficiaries, operation of the business is limited to what is written in the trust deed (the written rules of the trust), losses are not distributable and a trust cannot retain profits without being subject to penalty rates of tax.
Income, losses, and control of the business are shared between the partners, start-up costs are low, there is greater borrowing capacity than a Sole Practitioner/Trader and great employees can be made partners in the future.
Unlimited Liability of the debts of the partnership, and each partner is an agent of the partnership and liable for actions of the other partners, each partner pays tax on their share of the partnership at their marginal rates and generally can’t claim deductions for money drawn from the business, risk of disagreement and friction among partners and management (especially if there is no partnership agreement) and dissolving a partnership can be costly.