You’ve decided you want to start your own business. One of the key decisions you now need to make is which structure will work best.
With numerous options available, it may seem quite overwhelming. Before establishing your business, it is vital you understand the legal requirements of your business set-up and seek legal advice in making a final decision.
Your business structure will ultimately affect the tax you pay and options for tax planning, as well as your set-up costs and personal liability if something was to go wrong.
Four of the most common business structures available are:
This is the simplest structure to set up and run. As a sole trader, you are the business. Whilst this structure is relatively inexpensive to set up, your access to finances is usually limited to your own resources.
Operating your business as a partnership means carrying on your business with one or more other people as partners and receiving joint income. Keep in mind that if you choose to establish a partnership, you and your partner(s) are personally responsible for the partnerships debts.
A company exists as a separate legal entity from the owners (called shareholders), meaning that in most cases personal assets of the owners cannot be touched to pay for the debts of the company.
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A trust is run by its trustee, for the benefit of the trust’s beneficiaries. The discretionary trust is the most common variety of trust. The trustee of the discretionary trust has the power to determine how the profit will be distributed among the beneficiaries. The trust does not pay tax; rather, each year’s profits are distributed to the beneficiaries who pay tax.
Keep in mind that as your business grows, you may need to re-evaluate your current structure, particularly if you’re a sole trader and want to take on a partner or even register as a company. There is no right or wrong structure for your business; rather there are advantages and disadvantages for each structure.
Read more about the pros and cons of each business structure:
Did you have any troubles choosing the right structure for your business?