Business Structures - Which one for me?

Choosing a business structure when starting up a business is an important element of the setup phase.

Business structure is important as it can impact on taxation, liability of owners, succession, ownership issues and disposal of your business. The four principle business structures include:

Business operators are not limited to one structure alone. For example, it is common for some businesses to apply two or more business structures - eg. business is owned/operated in a company while the plant, equipment, fixtures and fittings are held in a family partnership or trust. This is a common practice for professionals where the primary service operations are separated from administration - commonly called a "service entity".

When considering a separate "service" entity, consideration also needs to be given to taxation guidelines and rulings relating to what operations can be divided off and that charge rates are reasonable. Where payments associated with service entity arrangements are excessive or the services are not reasonably connected to the conduct of the business, then the ATO may question some aspects of the service fee. It can be critical for business to seek advice from a tax professional.

Before you start a business you should consider the advantages and disadvantages of each type of structure. Your business structure can affect the safety of your personal assets and taxation, the continuation of the business upon ownership change and will determine what registration process you will need to undertake.

Some of the factors to consider when choosing the structure most suitable for you are:
  • legitimate tax minimisation
  • establishment fees and maintenance costs
  • asset protection
  • type of business

Remember - you are not locked into any structure. You can change the structure as your business and your personal circumstances changes or grows

The ATO's Personal Services Income (PSI) regulations can impact on labour only type business operations. Advice should be obtained from a registered tax agent or practicing accountant.

For a FREE Fact sheet ==> Business Structures Explained

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