Choosing a business structure is essential when you start a business. Your business structure will affect your legal obligations, taxes and liabilities, as well as how you operate, so it is crucial to choose the right one for your business.
Understanding Victoria’s four types of business structures and their advantages and disadvantages is key to choosing the right one for your business.
Types of business structures
There are four commonly used business structures in Victoria:
- Sole Trader
Easily the simplest form of business structure, a sole trader structure gives the business owner all the decision-making power. To put it simply, you manage the business entirely yourself.
Benefits of a sole trader structure can include:
- Complete control of business decisions
- Relatively easy and inexpensive to set up
- Access to all profits and losses
Downsides of a sole trader business structure may include:
- Unlimited liability with all of your personal assets at risk should something go wrong.
- Personally liable to pay tax on all income derived from business
- Inability to share business profits or losses with anyone other than yourself.
Business partnerships comprise between two and twenty people who go into business together or receive income jointly. Partnerships can be general or limited and are governed by the Partnership Act 1958.
Benefits of a partnership business structure can include:
- Relatively low costs to establish
- Risk and rewards shared among partners
Downsides of a partnership structure may include:
- The prospect of conflict in decision making
- Legal liability exposure can limit asset protection in some types of partnerships.
Unlike sole traders or a partnership structure, a company business structure is a separate legal entity. Therefore, a company has the same legal rights as a natural person to incur debt, sue and be sued. One of the most complex business structures, companies in Victoria must comply with the Corporations Act 2001.
A company has members (also known as shareholders) who own the company and directors who run it. Using a company structure removes the liability from you as the company owner; however, a company structure is much more expensive to register, not to mention complicated to run.
Finally, some business owners decide to go with a trust structure. A trust is typically used to protect the business assets for beneficiaries. Trusts are complex, so it is essential you engage the help of an experienced trust lawyer in Geelong to set it up.
Choosing the right business structure
Deciding which business structure is right for your business does not have to be complicated. Engaging a knowledgeable Geelong business lawyer will take the guesswork out of choosing the best structure for your Victorian business.
The Business Law team at Whyte, Just & Moore will advise you on all the advantages and disadvantages of the various business structures, helping you select the right one for your business. Luckily, you can always change the structure of your business as it grows if needed. Experienced business lawyers at WJM can assist you with transferring assets from one structure to the next if required.
Set up your business for success with the right business structure. Give the WJM business law team a call on 03 5222 2077 to set up your free no-obligation initial consultation to discuss how to structure your business.