Getting the right business structure in place is one of the most important business decisions you can make throughout your business lifecycle.
Unfortunately, without the right business advice it can be an easy mistake to get your business structuring wrong. Aside from causing operational pain, the wrong business structure can literally cost hundreds of thousands of dollars over the life of your business.
However, on the flip side, if you get your structure right, it can save you lots in the years to come.
What to consider
When advising our clients we look at two key areas:
- Does your business structure maximise your tax opportunity?
- Does your business structure protect your personal assets and high value business assets?
Most people believe the easiest way to protect their personal assets is to set up a company.
Yet a company structure can be inefficient at minimising tax and can also result in higher compliance costs and higher income taxation then otherwise required.
While it’s true that a company pays 30% tax on its earnings (or 28.5% for Small Business Entities), depending on the drawings taken from the company, you can expose yourself to a much higher personal rate of taxation.
When faced with this dilemma, trusts can be a good option. Trusts, when set up correctly, can act as a vehicle that can be selectively used to minimise both income and capital gains taxes. In many cases it enables, the ability to distribute to other beneficiaries of the trust, most commonly within a family group.
But wait there’s more…
Companies and trusts are not your only options. There are other combination business structures that offer both asset protection and tax efficiency.
If you are considering a partnership, the devil is in the detail. Many partnership agreements overlook issues that can cause rifts in partnership. Before entering into a partnership, meet with your accountant and a business lawyer to draw up formal agreements.
What’s important is to ensure the structure you choose is the most relevant to you and your business.
Is your business structure right for your situation?
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