There are four main types of business structure:
- Sole trader
Which business structure you choose will depend upon your circumstances, your budget and your growth plans.
As a sole trader, your business will be operated and managed under your own name, which means any income you earn will be taxed on you as an individual.
A partnership allows two or more people to carry on business together, as partners. Legally, all partners are equally liable for the actions of the other partners, so you should choose any partners wisely. A solid partnership agreement ensures any issues down the track can be finalised in accordance with the partnership agreement.
A company is a separate legal entity and has limited liability, although Directors do have additional liabilities and may even have personal liability. If you have shareholders in the company, then a robust shareholders agreement is essential as this will determine future events, such as a sale of the business and bringing on additional shareholders.
With a trust, it is the trustee who determines how income is distributed to beneficiaries of the trust, and the powers of the trustee are determined by the trust deed. The most common forms of trust are a unit trust and a discretionary trust. There are also trusts contained in wills, known as a testamentary trust.
In a unit trust, the holders of the units in a unit trust are not subject to the discretion of a trustee, rather their rights to income and capital are fixed in accordance with the trust deed. In a unit trust, the trustee cannot distribute capital or revenue losses to its beneficiaries.
Conversely, in a discretionary trust, the trustee has a discretion to decide which beneficiaries receive payment, and how much they receive.
A testamentary trust is a trust that is set up pursuant to a will.
If you would like more information on how to best structure your business, or to plan your estate so that a testamentary trust is in place following your death, please contact us.
© 2017 Allison Stanfield