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Writer's pictureJensen & Co Lawyers

New Business Essentials: How do I choose my business structure?

Updated: Dec 15, 2020

One of the fundamental questions you need to ask yourself when starting a new business is, "how do I choose a business structure?" This is an important decision and not one to be overlooked. Not only does choosing the right business structure help set a strong foundation for your business, but it also provides a clear sense of direction. To help you get your head around it, we have put together a quick guide of the most common business structures.


Firstly, look at your business

When choosing a business structure, you need to think about your business and the industry you are in. Ask yourself questions like:

  • How much do I think my business will grow?

  • What is the value of my business?

  • How risky are my business activities?


Next, review the most common business structures

Sole Trader

If you are an individual operating a business under your own name and Australian Business Number (ABN), then a Sole Trader structure may a good option for you. The benefits of this structure include minimal costs and administration, and easy to set up. Things to consider include, it can be difficult to raise capital and you are personally liable.


Partnership

If you are going into business with another person/people, you may opt with a partnership structure. While a partnership is not a separate legal entity, it will have its own ABN and Tax File Number (TFN). The benefits of this structure include that it's easy to set up and dissolve. Things to consider include personal liability and being responsible for any shortfalls. It can also be difficult to raise capital.


Company

If you are keen to set up a separate, legal entity then you may consider a company structure. This is where one or more people create a company as shareholders. With this business structure, the company will have an Australian Company Number (ACN), as-well-as typically an ABN and TFN. While setting up your business as a company attracts a bigger cost and more administration requirements, it limits your liability and is easier to raise capital.

Review what's important

It's important to remember that every business is different. Your choice of business structure will be determined by your individual circumstances. Think about what's important to you and your business. For example, raising capital, limiting your liability, minimising costs. It can also help to speak to a lawyer and an accountant, so you get a clear understanding of the costs involved and your tax obligations under each structure.


Remember, your structure can change

Making big choices early on in your business can be tough. With your business structure, it's important to remember that you can change this later. For example, if you start as a Sole Trader, you may opt to move to a company structure if your business grows, you change your business strategy or if you decide to restructure to improve profitability and cash flow. The choice you make now, while important, is not forever.


Do you need some legal help with the setup of your new business? Contact our team for a no-obligation chat.







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