7 Factors to Consider When Choosing a Legal Structure for Your Business

Choosing a legal structure for your business is one of the most important decisions any new business owner will make. This will have a significant impact on key areas including payment of tax, control over the business, and legal liability.

For this reason, it is a decision that should be made in consultation with experienced business lawyers in Melbourne. I such a way you will obtain expert advice on which legal structure will be most suitable for your business. Especially for the specific and unique requirements of your business.

In Australia the main legal structures for businesses are:

  • Sole trader
  • Partnership
  • Trust
  • Company
  • Cooperative

The following seven factors differ across these main legal structures. Therefore, they are important to understand when choosing a structure for your business.

1. Control

An important factor to consider when selecting your 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. This is because a considerable advantage of a complex structure such as a company is the protection from your personal assets becoming liable from any debts and losses incurred.

The different structures each have differing setup procedures, costs 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.

For other legal structures about disability claims and benefits, check here.

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, it is not an appropriate structure to choose if expansion can 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 structure has few reporting and administrative requirements, 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 recordkeeping 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. In such a way you will ensure that your legal structure will suit your business and personal needs.

Author Bio: Laura Costello is in her fourth year of a Bachelor of Law/International Relations at Latrobe University. She is passionate about the law, the power of social media, and the ability to translate her knowledge of both common and complex legal topics to readers across a variety of mediums in a way that is easy to understand.

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