What is Looked at in Determining an Appropriate Business Structure
Determining the right business structure is very important and can differ from business to business. Here are some of the things an accountant will look at when determining an appropriate business structure for a client.
- Is the business being run for the benefit of a single family or a number of unrelated parties;
- Is it the intention that over time the business will have significant assets;
- How is the business to be funded – eg, through a loan or equity;
- Are the activities of the proposed business likely to expose the owners to high risks and therefore potential liability;
- Will the business incur losses at any stage;
- How much income is the business expected to generate;
- Is the business likely to bring in other partners/owners at a later stage;
- Does the owner/s understand the various types of structure;
- Is there a business plan in place;
- What role does superannuation play in wealth creation for the owners; and
- What are the long- term goals of the business person.
This is not meant to be an exhaustive list but it gives you an idea of the type of information an accountant will want to know so as to be able to provide you with the most appropriate advice in setting up a business structure.
For example, if the business is being run by a family solely for the family, then a discretionary trust might be an option whereas if the business was to be run by a number of people unrelated then it is unlikely that a discretionary trust would be the best option.
Potential business owners also need to understand that the structure of the business is more to do with protecting the assets of the owner/s rather than the tax advantages. That is to say, obtaining an tax break is less important than the risks associated with exposing the business owner/s to high liability claims and they have the potential to destroy the business and place the owner/s at risk of losing the assets that they have work hard to achieve.
If you are thinking of going into business, or you are not sure if you are operating under the right structure, call Balanix today on 3264 4783.