Choosing a Legal Structure for Your Business Venture
- Written by NewsServices.com
Running a business means putting many factors into consideration. That said, one of the most critical considerations any new business owner will make is the legal structure of their organization. This is because it will have a big impact on many critical aspects such as tax payment, business control, and legal liability.
Protecting the Legal Structure of Your Company.
As we have seen, the legal structure of any business is the foundation of its identity. That said, making this decision should be done with maximum caution. Most preferably, it is good to seek the help of a lawyer. This is because they will enlighten you on the structure that suits your business best, based on its unique needs. Visit Cherry Black for legal protection of your business structure.
Remember, here are the primary legal frameworks for businesses in Australia:
- Sole proprietorships
- Partnership ventures
- Trusts
- Limited liability companies
- Cooperatives
Before choosing any of these legal structures consider the following 7 factors:
- Amount of Control over Business Operations
At all times, the level of control you want over your business is a crucial issue to consider when choosing your structure. For example, if you want to own and operate your business entirely on your own, a sole trader structure is the best option. This is because the aspects of the firm you control and legally own will depend on the legal structure you choose.
- Limit of Liability
The legal structure you choose will have a significant impact on your potential legal liabilities. Before deciding on a business structure, think about how much protection you need against personal legal liability. This is because there are major benefits of sophisticated structures like corporations. One of them is the security they provide against your assets becoming liable for any debts or losses incurred.
- Complexity and Cost of the Formation Process.
The setup methods, expenses, and duration for the various entities are all distinct. For example, a sole proprietor is simple to set up and has few reporting requirements. On the other hand, a more sophisticated structure such as a trust has more stringent reporting obligations. Besides this, it needs a lawyer or an auditor to certify its financial records.
- Flexibility and Future Plans
It's crucial to think about the vision of your business when choosing a legal structure. This is because some structures are less flexible than others. For example, the expansion of trust is punishable by law. Therefore, if expansion is a goal for your business, this is not the structure to adopt.
- Impact on Taxation
The amount of tax you pay and the types of tax you must pay will be influenced by the legal form of your company. A sole proprietor, for example, can claim tax benefits on personal taxes. On the other hand, those in trusts do not pay additional tax on earnings.
- Day to Day Administration
Normally, a sole proprietor has limited reporting and administration duties. However, sophisticated legal entities, such as a corporation, have stringent record-keeping and documentation requirements. That said, you must ensure that you have the time, people, and ability to adhere to the requirements of the entity you choose. For example, some entities require strict recordkeeping standards that are legally enforceable by law.
- The Continuity Aspect
Before choosing a certain structure, it is important to consider when and how you want the business to end. For example, forming a sole proprietorship is the best option when you want your business to end when you become incapacitated. 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.
Wind Up
Choosing an appropriate legal structure is a very important decision to make for your business. As such, it is important to consult with an experienced business lawyer. By doing this, you will ensure that your legal structure will suit your business and personal needs.
