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Nailing your business structure

Start-up business’ face unique challenges in the business world. As entrepreneurs tend to focus on capital raising, product development and marketing, its no wonder that business structure and the legal requirements that come with running a business are often neglected. However it can be difficult to wind back the clock, once you have established your business in a structure that does not suit the evolving needs of your enterprise.


Common Business Structures

The first step when starting a business is to decide what type of entity is the best form for the business. Which entity is the best depends on structure, liability, management and tax considerations. Generally entrepreneurs in Australia tend to use a private company as it has the ability to protect the shareholders’ personal liability.

However there are three main structures to choose from:

1. Sole Trader

2. Partnership

3. Company

A summary of the key differences between sole traders, partnerships and companies is set out below.


Sole Trader

A sole trader is where an individual operates their business under their own name and an ABN. There is no legal distinction between the owner and the business entity.

PROS:

▪ You are in charge of all decisions

▪ Easy and cheap to set up

▪ Least amount of admin


CONS:

▪ Personally liable if anything goes wrong

▪ Difficult to raise capital


Partnership

A partnership is where two or more people run a business together as partners to advance their mutual interests. There is no separate legal entity in which the business operates, however the partnership will have its own Australian Business Number (ABN) and Tax File Number (TFN).


PROS:

▪ Easy to set up and dissolve

▪ Business partners means sharing of expenses and access more funds


CONS:

▪ Personally liable if anything goes wrong

▪ Hard to raise capital

▪ Responsible for actions of other partners


Company

A company is a separate legal entity established by one or more people who are known as shareholders. The company is seen as its own distinct entity under the law, separate from the business owners/shareholders. The company is identified by an Australian Company Number (ACN) and will also usually have its own ABN and TFN.


PROS:

▪ Personal liability is limited ▪ Easier to raise capital

▪ Gives more credibility to your brand


CONS:

▪ More expensive to set up and maintain

▪ More admin when setting up and ongoing through the life of the company

One may also consider a trust structure, however a trust is more complicated and is generally used for tax purposes in a family environment. Best to speak to your accountant if this is an avenue you wish to peruse.


Important Considerations

How you structure your business will largely depend on your individual circumstances. The following should be considered when assessing which structure is right for you:


  • Financing – How do you plan to finance your business? How much capital do you need and can you get this personally, from family and friends or will you need to obtain a loan from a bank or deal with a venture capitalist firm?

  • Liability – How much personal risk are you willing to take? The structures vary greatly in this respect.

  • Business partners – If you are not going it alone, then you need to consider the split of ownership of the business and how you want to operate as a collective of minds.


If you are going down the Partnership route, then you should get a Partnership Agreement put in place. LxD can assist you with this under out fixed fee packages.


  • Employees – do you need an employee/s in the immediate future or would you rather engage freelancers/contractors to provide you with services?


LxD offers a number of Employment or Contractor Agreements as part of our fixed fee packages, so feel free to get in touch.


  • Tax – Each structure has its unique tax rules and requirements. It is best to speak to your accountant who can advise on the tax implications of each structure.


Various Registrations

There are 3 key assets you will want to register when establishing your business. These are:

1. Business Name

2. Intellectual Property

3. Domain Name

If your business name is available, you can register your business name and apply for an ABN at the same time. You can do this via the Australian Business Registration Service, https://register.business.gov.au/ where you will find other handy resources.

Remember, just because you’ve registered a business name, it doesn’t stop your competitors from using a similar name or logo.


To ensure that your assets are protected, you should register your brand/logo via IP Australia,

All businesses in this day and age should have a website as it provides credibility and crucial information about your business. To have your own website, you need to register a domain with a domain registry. There are a number of domain registries but the most commonly used are GoDaddy or Netregistry. Do not hesitate on registering your domain as they are singular and once someone else has taken the name it is near impossible for you to obtain that name for yourself.


LxD is here to help

There are a lot of decisions to be made when setting up your business and assuming you know it all can lead to difficulty in the long run. That is why LxD is here to help. Give us a call for an obligation free chat, or book one of our fixed price services online.

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