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Right Corporate Structuring
Are you in the process of setting up your first business venture? You may already have a website and a logo picked out, but there is one very important decision which must be covered. Which business structure is best for you?
There are many issues to take into account when making this decision, so it’s really important that you take the time to get this right.
There are four main structures to consider when setting up your business. These are:
- Sole trader
- Incorporation (Pty Ltd)
YML will run through some of the main pros and cons of each structure, and while you are thinking these over, make sure you keep the following in mind:Right Corporate Structuring
- Are you thinking of inviting partners or investors into the business?
- What sort of personal liability are you willing to take on?
- Will your structure be tax efficient?
- How much are you willing to pay in administrative costs?
If you’re finding all this a bit overwhelming, a dedicated business advisor can assist you in making this decision with all the available background knowledge.
Setting up a business as a sole trader is probably the easiest and fastest way to get up and running. There’s little paperwork required before you can start trading, but there are some definite trade-offs to this situation. If you are a sole trader, you have very little protection for your own personal assets should you become involved in litigation. Administrative costs are low, but tax benefits are almost non-existent.
Everyone loves a good partnership. PB&J, Milo and Milk, how can you go wrong? A business partnership means you can share business income and ownership with more than one person, but it also means all partners become responsible for any actions taken or business debts incurred. Suddenly, your liability is skyrocketing. However, if you have a partner or three that you trust, a partnership keeps administrative costs low, allows you to combine your assets (useful when applying for that new office lease), and can make things run pretty smoothly. It’s important to seek financial advice when setting up a partnership though, to make sure everyone understands what their obligations and responsibilities are.
Incorporation (Pty Ltd)
Setting up a Pty Ltd company is a great way to separate your business entirely from your legal assets on a personal level. In case of any wrongdoing or legal action, only your company assets are at risk – not your house, car, and expensive poodle. Be aware though, this set-up can be costly to maintain and comes with paperwork. A Pty Ltd also opens up the possibility of shareholders down the track, and offers some useful tax benefits. You will need to engage an accountant to manage this structure effectively.
A trust is a tricky structure, and one that isn’t really an organisation at all. Think of it as a legal tool to contain business assets. A company (see above) can be a trustee, which means they maintain the assets of the business through the trust. This is a great way to limit liability in a big way, and also provides some flexibility when it comes to taxes. If you are thinking of setting up a trust, make sure you speak with a financial and tax planner to discuss the complexities and costs involved.
So, there you have it: your top four options. Being a business owner can be incredibly rewarding, and choosing the right structure at the start will help you succeed from Day 1
How can YML help?
Talk to a business advisor today to see how YML Group can assist you with your corporate structure. Contact us on (02) 8383 4400 or by visiting the Contact Us Page