A business can adopt various structures. But choosing one from so many options available can be a difficult task for any owner. Making the right decision about your Business structure is critical, as the type of structure you choose can impact how your business is owned and run, how much tax will have to be paid, how much personal liability the owners will hold and more. Also, choosing the structure wisely from the start can help you avoid unnecessary conversions in the future.
Prioritising the factors that are crucial for your business can help you massively when choosing the right structure for your business. So here are the top three factors you’ll want to consider when choosing a business structure.
1. Control and responsibility
Different business structures give the owner a different level of control and responsibility. For instance, a sole proprietorship gives you full control of your business, but also comes with a lot of work and responsibility. In partnerships, control of the business is shared among the partners, who also share the work and responsibility.
2. Tax situation
Business taxation is determined based on the type of structure you pick for your business. Each business structure is treated differently by tax authorities. For example, a sole proprietor is normally taxed at the personal level, whereas, in an LLC or corporation, business owners will possibly have to pay corporate tax, and personal tax or additional specialty taxes imposed by the government. An accountant or business advisor can help you understand tax structure and find the best option that fits your business.
3. Liability dilemma
The activity and scale of a business determine the level of risk associated with it. When choosing business structures, owners should consider the liability factor. Choosing the right business structure can help the owners protect themselves in case the company goes bankrupt or suffers a loss. For instance, some entity types offer limited liability protection, which protects owners’ assets. On the other hand, in unlimited liability businesses, owners are responsible for any company debts or legal problems.
The Bottom Line
The kind of business structure you choose can have a major impact on the financial success of your business. Unfortunately, businesses are quite varied, and there is no perfect structure that can guarantee success in all of these factors. However, you must consider certain key measures when deciding which business structure is right for you. Therefore, it is important to consult an experienced and well-versed professional while deciding on your structure.
At Zimsen Partners Pty Ltd, we provide valuable insight into structuring options for your business, ensuring your ownership structure continues to serve your best interests. Our expert business accountants have the technical and operational knowledge to help your business tackle any future challenges easily.