Choose A Business Structure

Author: Youth 2 Youth

Your business structure is an essential ingredient to success. There are different types of business structures; all with benefits and also disadvantages - so deciding which one is right for you and your business is as crucial as polishing your initial business idea into something feasible! Like your business idea, the structure of your business forms the foundation for how you will conduct your business.

Factors that can affect the structure you decide on include taxation, personal financial liabilities and establishment costs. These things will also affect the complexity of your chosen structure, and so you should note that the more complex the business structure the more expensive it will be to establish.

The most common business structures are: Sole Trader; Partnership; and Proprietary Limited Company. These are outlined below.

Sole Trader:
This structure refers to an individual conducting a business alone without a partner or partners. This is irrespective of whether you have, or will have, employees. It only refers to business ownership.

Partnerships:
Establishing your enterprise as a partnership can overcome some of the difficulties of being a sole trader. A partnership allows a group of people to come together and contribute their time, talents, and money towards a common goal - the success of the business idea or venture. In return, they share the responsibilities and profits. Youth 2 Youth is an example of a partnership.

Produce a written partnership agreement! This outlines for each partner their role, their workload and contribution to the business and how this relates to their equity, responsibility, and share of profits. If a partner wants to leave, or does the dirty on you, this agreement will let you know where you stand legally! If you decide not to have a written agreement, the law will assume each partner has an equal share in the business (which isn't always the case).

· Limited Partnership:
The NSW Partnership Act has provided the option of a limited liability partnership structure where the liability of a partner contributing capital is limited by the amount of this capital contribution. This is only permitted with 'silent partners' who do not have a hands on role or other management say within the business. If you are not in NSW but would like this business structure, check with your State trading department to see if this clause is available.

Proprietary Limited Company:
Choosing to take the structure of a private company is not the most common choice for a new business due to its complex structure in comparison to that of being a sole trader or partnership. Regulatory concerns to do with this structure can be a huge burden on small business.

For more specific information regarding setting up a proprietary company, check out business books or get some free business advice from us at hothouse@youth2youth.com.au. You can contact The Australian Securities Commission for information sheets.

Business structure is something that your accountant and lawyer can advise you about, as there are tax as well as legal considerations. This need not be an expensive exercise at all - just ask them!

'Copyright 2003 Youth 2 Youth'

Disclaimer: This article is for your information, but it may not apply to or be suitable for your situation, so seek professional advice. Youth 2 Youth or Y-Biz Hothouse cannot be held liable for anything resulting from how you use the information provided in this article.