For this reason, it is a decision that should be made in consultation with experienced business lawyers in Melbourne to obtain expert advice on which legal structure will be most suitable for the specific and unique requirements of your business.
In Australia the main legal structures for businesses are:
- Sole trader
- Co operative
The following seven factors differ across these main legal structures, and are therefore important to understand when choosing a legal structure for your business.
An important factor to consider when selecting your legal structure, is the level of control you wish to have over your business. For example, if you wish to own and operate the enterprise completely alone then being a sole trader would be the most appropriate structure. Your choice of legal structure will affect what aspects of the business you will control and what aspects you will legally own.
2. Limitation of liability
Your choice of legal structure will have important implications on your potential legal liability. Considering the extent you need to be protected from personal legal liability is important before choosing a business structure, as a considerable advantage of a complex legal structure such as a company, is the protection from your personal assets becoming liable from any debts and losses incurred.
3. Cost and complexity of formation
The different legal structures each have differing set up procedures, cost and complexities involved. For example, while a sole trader is simple to set up and requires few reporting requirements, a more complex structure like a trust involves strict reporting requirements and must be set up by a solicitor or an accountant.
4. Flexibility and future needs
It is important when considering a legal structure to also reflect on where you envision your business going in the future. For example, the expansion of a trust is subject to legal penalties so is not an appropriate structure to choose should expansion be a goal in mind for your business.
5. Tax implications
The legal structure of your business will have significant effects on the amount of tax you pay and the kinds of tax that you must pay. For example, a sole trader enjoys tax benefits from being able to claim on a personal tax return and those in a trust do not pay income tax on profits.
6. Ongoing administration
Whilst a sole trader legal structure has few reporting and administrative requirements, the complex legal structures such as a company have strict and difficult record keeping and paperwork requirements. In fact, an important consideration before setting up a complex legal structure, is ensuring that you have the time, people and ability to abide by the strict record keeping requirements that are legally enforceable.
7. Continuity of existence
It is important to consider how you see the business coming to a conclusion. If you wish for the business to be terminated when you personally wish for it to end, then becoming a sole trader is the most appropriate option. However, if you wish to secure your family’s financial future, it is more appropriate to select a legal structure that does not come to an end if you are incapacitated.
Choosing an appropriate legal structure is a very important decision to make for your business. It is therefore important to consult with an experienced business lawyer, to ensure that your legal structure will suit your business and personal needs.