How to Choose the Right Business Structure?

company representatives shaking hands in agreement

The business structure can affect the legal costs, tax obligations, asset protection and legal and operational risk of the business. It is, therefore, important for a business owner to choose the right business structure. However, it is difficult to choose a business structure because there are four types of business structures. 

Here are the four types of business structures: 

1. Sole Trader

It is a simple business structure. A sole trader operates and manages their business under their own name. It is easy and cheap to set it up. However, it is almost impossible to grow it. A sole trader structure is good for very small businesses.

2. Partnership

A partnership is when two people formally agree to jointly operate and manage a business. It is simple and affordable to set up a partnership structure. The partners are not only responsible for their business’s debts. They are also equally liable for the actions of the other partner. 

3. Company

If you want to grow a successful business, you might want to choose a company structure. A company structure is perfect for high-risk businesses and startup businesses. This is because it is much easier for a company to raise capital. In fact, a company can issue shares to raise capital. 

4. Trust

You can run your business using trust. The corporate trustee or individual in a trust controls the trust. Therefore, they use the trust deed to distribute profits to the trust’s beneficiaries. Individual trustees are liable for the debts of the trust. However, you cannot use the profits left to scale the trust. 

How to Decide on a Business Structure 

If you want to start a business, you must write down your long-term goals and business goals. In addition, you must choose the right type of business, consider the risk of the business and create plans for growing your business. You should also consider if you will involve other people. 

The upfront and ongoing costs of each business structure are different. Therefore, considering your capital can help you decide on a business structure. It is cheap to establish a sole trader. However, it costs more money to establish complicated structures, like trust with corporate trustees. 

Make an informed decision

Choosing the right business structure is difficult. If you are not too sure, you can contact Griffiths Advisory to assist you in choosing a business structure. In fact, if you are a medical practitioner or doctor looking for a specialised tax accountant for your business in Perth, Western Australia, contact Griffiths today.

Phil Griffiths

Phil Griffiths

Bachelor of Commerce
Certified Practising Accountant
Diploma in Financial Planning
Professional Certificate in SMSF
Approved SMSF Auditor

Phil has been managing director of Griffiths Advisory since it began 29 years ago. With a wealth of experience in taxation, business advisory, superannuation, negative gearing, and wealth creation.

Phil enjoys a healthy active lifestyle which includes surfing, cycling and snowboarding, as well as spending quality time with his wife and two children.

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