What is the best business structure for your needs?

It may sound strange to think about the end of your business before it even gets off the ground, but that is exactly how you figure out what the best business structure is for your needs.

A business structure does these things:

• Denotes ownership.
• Sets tax rates and rules.
• Delineates liability.
• Designates employer status.
• Affords business continuity when ownership changes.

Ownership change is often overlooked during the startup phase of any business. However, thinking about business continuity in the future is wise because changing your business structure later on has consequences.

To illustrate this point, say you're starting a landscape business on your own with family and friend startup cash. After year one, you have more clients than when you started, and you begin to look into hiring part-time employees and purchasing equipment to handle all your business needs. However, if you are a sole trader, you can't split your profits (or losses) with the family members who invested in your landscaping business. You alone are responsible for debts and you alone reap the profits. You can hire more employees but employee mistakes could put your personal assets (i.e., house or retirement scheme) at risk. This is not a sustainable business structure for any small business owner that wishes to grow. Moreover, if you want your landscape business to be a legacy, you will have to choose another business structure to accomplish that goal.

Business structure options

There are permutations of any business situation that couldn't be adequately covered here but to give you a general idea of your options, consider the following three structures:

Sole trader: It's all up to you — the day-to-day, debts, losses, superannuation and hiring. (You could outsource your accounting to WMC Accounting.)

Partnership: Business decisions and control are shared between two or more partners. A big difference between a partnership business structure and the sole trader is that taxes are based on the share of the net profit each partner receives.

Company: This business structure differs from sole trader or partnership in that a company is an entity that can take on debt and face liabilities, just like a person. So, the profit and capital belong to the company whilst directors manage the business and shareholders own it.

Consider where your business might end up when deciding what business structure is best for your needs. Reach out to WMC Accounting for services to assist you in choosing a business structure today.