There are 5 basic structures that you can consider:
1. Sole Trader
3. Trust (Either discretionary or fixed or a combination)
5. Self Managed Superannuation Fund
So what are the things you need to consider in deciding the most appropriate structure for venture? Consider these:
The costs of establishing a structure and administering it can vary significantly
2. Asset Protection
Is there a risk associated with the venture that you need to protect your other assets (private or business) from? In other words, separating private and business assets will be critical to many.
3. Income Tax
Whatever structure you use needs to enable you to minimise the impost of taxation and provide you with the flexibility to adapt with changing circumstances.
4. Capital Gains Tax
It is very important to consider the capital gains tax implications of your future exit from the venture, right at the outset. In Australia, there are numerous capital gains tax concessions that may or may not apply to alternative business structures. The major point here is that it would be a pity to save $20000 income tax and then incur $100000 of capital gains tax on exit without being aware of this possibility at the outset.
5. Ease of admitting and exiting owners
If your future plans involve admission and exit of owners you need to consider the ability of the structure to handle this at the structure establishment phase. What you need to establish is a structure that can accommodate this in the most effective way, taxation and capital gains tax implications included
6. Estate & Succession Planning
If the future passing of the business to the next generation or how the business is required to be dealt with on the death of the owner are critical points then the type of structure that is established will need to adequately cover this. The tax implications of doing this wrong can be substantial!
7. Statutory or other requirements
Sometimes the type of business or industry you operate in will dictate what structure you must establish. Make sure you do your research!
In practice, we find that in many cases that there is no one structure that ticks all the boxes. It is about clearly identifying the most critical factors and coming up with the best fit structure. In many cases, a compromise is established whilst being fully aware of the shortfalls.
Further, we sometimes find that the ideal structure is a combination of the alternatives!
Getting the structure right is critical in ensuring the future effectiveness, efficiency and viability of your business or investment.
Chris Foster is a Chartered Accountant with Green Taylor Partners, Australia
Ph: 03 53 824761