Business Structures

The key factors in deciding on a structure for a business are usually the following:

Tax
Asset protection
Funding and exit strategies

It’s therefore important to speak to your accountants as well as your lawyers about your business structure.

Operating entity

The first decision is usually whether the owner(s) will trade:

in their own name, or
through an entity.

If there is more than one owner and they trade in their own names, they are usually in partnership (and should have a Partnership Agreement).

If the owner(s) will trade through an entity, which entity type will they use? Entities commonly used include:

companies
trusts
partnerships
joint ventures

If there is more than one owner and they trade through a company (or unit trust), they need to decide who will own the shares (or units) (and they should have a Shareholders/Unitholders Agreement).

Holding Entities

You should consider whether you want valuable assets to be held in a separate asset holding entity (and if so, whether there should be a group holding company).

Other structures might be relevant, depending on the circumstances.

Deciding on a structure can get complicated. As a start-up you would want to keep things simple but resist the temptation to avoid the question of structuring altogether – you may well regret it later:

it’s usually a lot more complicated and costly to change structure later on than set it up initially
it’s risky - one of the aims of structuring is to manage risk, and if the structure isn’t right, risk might turn to reality

You should at least get some basic advice on structuring.

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If you would like to discuss any aspect of this article with us, or share your own experiences, please contact Rod Stumbles at +613 8692 7255 or here.

DISCLAIMER

This article provides general information only and is not intended to constitute legal advice. No lawyer-client, solicitor-client or attorney-client relationship has been created between us. You must not rely on the contents of this article, whether as an alternative to legal advice from a lawyer or other professional legal services provider or otherwise. You should not take, discontinue or refrain from taking any action because your understanding of the contents of this article, including without limitation delay seeking legal advice or disregard legal advice. If you have any specific questions about any matter, you should engage us or other lawyers or other professional legal services providers to provide you with the necessary advice. Keep in mind that you may be facing important deadlines so you should not delay in engaging someone to provide you with the advice.

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