When starting a business, there are three common structures to consider: a company, a trust, or a sole trader. Each structure has its own benefits and disadvantages, and it’s important to choose the right one for your specific needs. Here’s a closer look at the benefits of each, along with some examples.
A company is a separate legal entity that is owned by shareholders. One of the main benefits of a company is limited liability, meaning that the personal assets of shareholders are generally protected if the company runs into financial difficulties. A company may also be able to access more favourable tax rates compared to an individual. However, running a company can be complex and requires a higher level of administration.
For example, John wants to start a construction business with his friend Mark. They decide to form a company, ABC Constructions Pty Ltd. As shareholders, they can limit their personal liability in the event of any legal issues that may arise from the business.
A trust is a legal entity that holds assets for the benefit of a specified group of people or organisations. One of the main benefits of a trust is that it provides greater flexibility in the distribution of income and capital gains, as well as potential tax savings. However, setting up a trust can be complex and requires the help of a professional.
For example, Sarah wants to start a property investment business. She decides to form a trust, ABC Property Trust, with herself as the trustee and her family as the beneficiaries. This allows her to distribute the income from her investments to her family members, potentially reducing her overall tax liability.
A sole trader is a simple business structure where an individual operates their business as themselves. One of the main benefits of a sole trader is that it’s easy and inexpensive to set up and maintain. However, a sole trader is personally liable for any debts or legal issues that may arise from the business.
For example, David wants to start a small online store selling handmade crafts. He decides to operate as a sole trader, trading under the name ABC Crafts. This allows him to start his business quickly and easily without the need for complex legal structures or ongoing administration.
In conclusion, each business structure has its own benefits and disadvantages, and it’s important to carefully consider your specific needs. If you need more clarity on which business structure suits your needs, please contact our office at 03 9973 5905.