Types of Business Structures
One of the most important decisions when starting a small business is deciding on the appropriate business structure. Each structure has varying tax eligibility and liabilities. Here at M.A.S Partners, we are a small business accountant based in Sydney Zetland, that work hundreds of businesses- offering business advice which includes advice on business structure. Deciding on the business structure right for you can often be a difficult decision. As such, we have listed several different business structures which will hopefully help with the process.
Often the simplest business structure form and is fairly inexpensive and quick to set up. In a sole trader business, one person owns the business and runs the operations. This business structure is the one for you, if you plan to work alone- as it is low risk and is often home based. When acting as a sole trader, you have complete control of your business; have simple tax report; and privacy within your business. The downsides of a sole trader is that they are personally liable for lawsuits; they have limited options for raising capital; and have higher tax rates.
In a partnership, there are two or more people that own and operate the business. Partnerships are not classified as separate legal entities, meaning partners are jointly liable for debts and litigations of the partnership. Similar to the sole trader, partnerships are one of the simplest structures for a business- especially a multi ownership one- having the advantage of combined knowledge and shared finances. Additionally, partnerships have difficulty with ownership transfers; have a lack of regulation; and high tax rates similar to sole traders.
Corporations are considered separate entities of its owners- as such they are liability protected. In doing so, it is much more complex and expensive than most other structures. As a corporation, it is much quicker to gain capital, as well having tax exemptions. The disadvantages of a corporation include it being time consuming to set up and manage; it can be subject to double taxation; as well as having strict formalities and protocols to follow.
A trust business structure is a relationship where an individual or company carries on business for the benefit of other people. A trust is not a separate legal entity and may be discretionary or fixed interests. A trust provides asset protection and liability protection in relation to the business; and are flexible on taxes. However, establishing a trust is fairly costly, and is a complex legal structure- often requiring an accountant to help set up.
Consider hiring an advisor
We small business accountants offer advisory such as reporting on ATO industry benchmarks, cash flow analysis, budgeting, KPI analysis, goal setting and business structure advisory. Many want to run a business but do not know where to start. At M.A.S Partners, we want to help you through the entire journey as your business accountant. We are passionate about helping your organisation thrive in a competitive environment and guarantee to effectively manage your finances and taxes as well as offering expert advice as your small business accountant. Feel free to contact us, here.