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BDR Business Accountants Mandurah offers expert guidance to help you select the business structure that is right for you.
Selecting the best business structure depends on several factors including your business goals, the nature of your business, liability concerns, tax implications, the number of owners involved and the relationship of the owners involved. Here are the most common business structures:
Sole Proprietorship/Sole Trader: A sole trader is the simplest form of business structure, where an individual operates the business as the sole owner. This structure is straightforward and cheap to set up and offers full control over business operations and decision-making.
However, the owner is personally liable for all debts and obligations of the business and there is very little tax flexibility. Sole proprietors may find this structure suitable for small-scale or freelance businesses where personal liability risk is low, but it may not be ideal for ventures with significant potential liabilities.
Partnership: Partnerships involve two or more individuals or entities coming together to operate a business. Partnerships commonly take the form of general partnerships, where all partners share equally in the management, profits, and liabilities of the business.
Partnerships offer shared responsibilities, resources, and expertise, but it’s crucial to have a well-defined partnership agreement outlining each partner’s roles, responsibilities, and profit-sharing arrangements to mitigate conflicts and disputes.
Proprietary Limited Company (Pty Ltd): A Pty Ltd company is a separate legal entity from its owners (shareholders), providing limited liability protection. Shareholders’ liability is limited to the amount unpaid on their shares, protecting personal assets from business debts and obligations.
Pty Ltd companies offer advantages such as perpetual succession, ease of transfer of ownership, and access to corporate tax rates. They require compliance with regulatory requirements and corporate governance standards, including the appointment of directors to manage the company’s affairs.
Unit Trust: Unit trusts are investment structures where investors contribute funds to a trust managed by a trustee. Investors receive units proportional to their investment and share in the trust’s income and gains.
Unit trusts can be utilised for various purposes, including property investments, managed funds, or operating businesses. They provide limited liability to investors, who are only liable for the amount of their investment in the trust.
Unit trusts offer flexibility in structuring investment arrangements and can be beneficial for pooling resources and managing risks across multiple investors.
Discretionary Trust: A discretionary trust is a legal arrangement where a trustee holds and manages assets for the benefit of beneficiaries. The trustee has discretion over how income and capital are distributed among beneficiaries, providing flexibility in tax planning and asset protection.
Discretionary trusts are commonly used for estate planning, asset protection, and tax minimisation purposes, particularly for high-net-worth individuals or family-owned businesses.
They offer limited liability to beneficiaries and can be structured to accommodate changing circumstances and family dynamics over time.
When choosing the best business structure, consider factors such as liability protection, tax implications, management control, succession planning and the nature of your business activities. Seeking guidance from legal and financial professionals is advisable to ensure the chosen structure aligns with your business goals and complies with regulatory requirements.
There are many more considerations than those that are listed above.
Call us on 08 9535 1566 or visit https://bdrbusiness.com.au
BDR Business Accountants
4 Sutton St, Mandurah WA 6210
(08) 9535 1566
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