How to Choose the Right Business Structure for Your Business

Eales & Mackenzie Lawyers Melbourne

There are many important things to consider when choosing the right business structure for your startup. Having a firm understanding of your current and future business objectives, the role you wish to have in the management and operation of the business and the degree of financial or legal responsibility you wish to take, are all important considerations when choosing to operate as a sole trader, a partnership, a company or a trust.

A sole trader is a business both owned and operated by one person, therefore making it the most simple and inexpensive business structure to set up. Most sole traders are people who provide specialist services as an individual rather than as part of a team, such as an independent photographer or plumber. The simple structure is utilized by business owners who do not wish for the business to continue on past their management.

A partnership bears many legal similarities to a sole trader structure, however it is between two or more people. A partnership is utilised as a business structure predominantly so that different people can bring different skills to a business. For example, a hairdresser without any business or accounting experience may choose to go into a partnership with an accountant who can manage the financial side of the business. The owners of a sole trader or partnership business are considered as the legal personality of the business, and are therefore liable for any legal issues or business debts. Therefore, if a sole trader goes into debt, he may be forced to repay it out of his own personal assets (such as his home or vehicle).

A company is a separate legal entity, meaning any debts or legal liability will not attach to a person. A company is a complex and expensive structure to start up and maintain. A common example of a company structure is many major retail or food chains who have utilised the company structure as a way to raise capital, expand without restriction and ensure the continuity of management and ownership.

A trust  is a legal structure where operations are strictly for the benefit of other people known as beneficiaries. A common example of a trust is a public charity, where donations are sought from the public and where the managing committee has a degree of responsibility to the community as beneficiaries of the trust. There are many legal requirements that must be fulfilled in order to establish a trust. For example, a public charity must first go through many legal and tax requirements to be considered as being established for genuine charitable purposes.

Eales & Mackenzie Lawyers have also created a simplified guide below,outlining the key advantages and disadvantages of each business structure, to ensure that you choose the right business structure for your startup.


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