Business Structures
Factors
The key factors in deciding on a structure for a business are usually the following:
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Tax
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Asset protection
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Funding and exit strategies
It’s therefore important to speak to your accountants as well as your lawyers about your business structure.
You will need to decide what entity the business will operate through and whether there will be a holding entity, service company or other related entities.
Firm Foundation
Operating entity
The first decision is usually whether the owner(s) will trade:
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in their own name, or
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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:
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companies
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trusts
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partnerships
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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.
Structuring Advice
Deciding on a structure can get complicated. Businesses tend to want to keep things simple but resist the temptation to avoid the question of structuring altogether, as you may regret it later:
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it’s usually a lot more complicated and costly to change structure later on than set it up initially
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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
Advice on structuring is recomended.
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