Tove Easton of Easton Lawyers
An important consideration to contemplate when starting a new business is the type of business structure that best suits your needs. Issues that you should consider when choosing the suitable structure range from on issues of liability and how best to protect yourself and your business from liability to financial and practical concerns.
1. Sole Trader
Assets and liabilities of the business belongs to the owner of the business – you. As there is no fire wall between your personal and business assets you would be personally liable in all aspects of your business. Some of the advantages are that this is a simple structure to set up and maintain; your retain effective control and as you are not an employee of your business you don’t have to make compulsory superannuation contributions, pay payroll tax or workers’ compensation for yourself. The greatest disadvantage is the unlimited liability which means that your personal assets are at risk should you be sued.
2. Partnerships
A partnership is not a separate legal entity but rather an association of individuals or entitles which come together for the purpose of carrying on a business activity with a view to making a profit. The assets of the partnership belong to the individual partners jointly rather than to a separate legal entity. The greatest advantage is probably that it is relatively easy and cheap to set up. But again the main disadvantage is the issue of the joint and several liability of partners. In practical terms this means that should one partner be unable to pay his or her share of a partnership debt then the remaining partner is fully liable for the whole of that debt despite any agreement to the contrary between the partners.
3. Company
A company is a separate legal entity and capable of owning assets it its own name. The main advantages are that this structure has limited liability for its shareholders, it is a structure which is commercially well understood and accepted and there are many choices as to the distribution of profits and losses to the shareholders. The greatest disadvantage is that it is expensive to set up and to maintain as it requires greater accounting and accountability obligations than say a sole trader. Control of the company lies with its directors so this may or may not be a disadvantage.
4. In Conclusion
As a guideline, the characteristics of a good business structure are flexibility so that the structure can cope with changing circumstances with minimum consequences to the business; minimisation of exposure to liability; minimisation of costs such as tax and the efficient distribution of profits and losses.
Tove Easton
PRINCIPAL LAWYER
Easton Lawyers
62 Maple Street, Maleny
Ph 5494 3511
6b/3 Obi Obi Road, Mapleton
Ph 5478 6500
tove@eastonlawyers.com.au
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