Setting up a brand new small business enterprise can be an exciting and exhilarating time of your life, but it can also be extremely demanding and highly stressful.
If you don’t set up your business structure correctly in the early days of being in operation, then it could lead to a troublesome experience correcting this incorrect choice, and lead to financial stress as you may need to appoint experts to help you!
There are a wide range of business structures out there, each with their own set of distinctive benefits and disadvantages. Sole traders, partners and franchising are some of the structures you will see. It is important that you clearly know the differences between all the different types of business structures as it will almost certainly impact your tax obligations, but also may impact any plans to expand your business as it grows.
The simplest business structure is a sole trader, where you only require a registration of your business name and this allows you to enter contracts in your name. You will ultimately have personal ownership and control of your business assets and any decisions you may make. You do have an unlimited personal liability though. This means that your personal assets would help you secure you a business loan, but your assets would be at risk should your business fail to meet its debt obligations to your loan provider.
Another very common business structure is a partnership. Contracts are made in the names of the business partners, with profits and losses divided by the proportionate share of capital contributions of each partner, and then they are aggregated for each individual partner with income for any other sources. Be mindful that there are limitations on payments of salary made to family members. In the partnership, there is a personal assumption of any liabilities from the business in terms of debts, joint and severally by all individual partners.
Discretionary Family Trusts
Alternatively, you can operate your business through what is known as a discretionary family trust. With a trust, business is conducted, and contracts are entered into in the name of the trustee, often a corporate entity. You could be a director of this corporate entity as is standard for asset protection. Income can be distributed to all or some of the beneficiaries (who can be family members) to take advantage of tax implications.
If you’re looking for a quick and simple loan solution to get yourself set-up with some extra funds to tackle the legal basics, talk to Unsecured Finance Australia about how we can help you meet your business finance needs.