Business structures come in many forms. Most people will set up as a sole trader, partnership, company or trust but without an understanding of why.
Put simply, your decision as to which business structure will suit you best depends on three main things:-
the risk in your business.
A graphic design business is reasonably low risk. A construction business is more likely to be high risk;
what you have to lose – in the business and outside it.
If you own your home and a holiday house outside your business, then you will not want them to be available to creditors if the business were to be sued. You need to know if and how they can be protected.
the effort and money you are willing to spend to maintain the business structure.
Ultimately, simple and inexpensive business structures are good for low risk start ups. However, once a business is no longer at the start up stage, business owners usually need more complex structures to protect them and their assets better.
Other considerations include:-
job descriptions, dispute resolution mechanisms and exit strategies
If there are two or more people are involved in a business, it will be important early in that relationship to agree on job descriptions, dispute resolution mechanisms and exit strategies. Once people are fighting, an outcome that everyone considers to be fair, is difficult to achieve.
Tax though relevant in your choice of business structure, but should not drive it.
Asset protection and if necessary flexibility need to be the main concerns. Because tax laws change, what is most suitable today may not beat all suitable tomorrow.
A word of warning, once you have set up the structure, the cost and effort required to change it may be more than you can afford. So getting it right at the start is important.
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