Choosing the right business structure for and your business can be confusing, particularly if you’re buying your first business or a business that’s quite different from previous businesses you’ve owned. The benefits of selecting one structure over another are very personal – it’s best to seek professional legal and financial advice.
The most common legal entities that you can choose to operate your business are:
A sole trader is a person trading on their own. Doing business as a sole trader is relatively simple – you control and own the business as an individual. You’re also taxed as an individual.
To trade as a sole trader you don’t need to register or have any legal documentation in place.
Potential disadvantages of trading as a sole trader include issues of personal liability.
A partnership, means two or more people run the business together. Partners share:
- Ownership of the business
- Profit or loss
- Liability for any debt within the partnership
Many partnerships are established with a formal partnership agreement that may allow for a differing share in the ownership, profit or liabillity of each partner. Partners receive income from the partnership and then pay tax on this income as individuals. Like sole traders, partners are personally liable for partnership debt.
A company is a formal, legal entity. Unlike trading as a sole trader or partnerships, a company is separate from its shareholder(s) or owner(s). A company needs to be legally documented and registered.
The assets and liabilities of the business are owned by the company. The company, rather than its shareholders, is responsible for any debt.
A family trust structure has at least one Settlor, one Trustee and one Beneficiary. The Settlor transfers assets into the trust, the Trustee controls the assets in the trust, the Beneficiary benefits from the trust and a trust deed governs the operation of the trust. Click here to read more about family trusts.
A trust allows income and assets to be distributed among beneficiaries, and can provide tax advantages.
Which business structure is right for you?
For more information and advice about choosing the right business structure please contact us for more information, or call 0800 PPTYLAW (0800 778 952) or +64 6 3705102 to speak to one of our experienced team.