When starting up a business, owners and their advisors should take into consideration a number of factors in deciding upon the most appropriate ownership structure.
These considerations include:
- Raising sufficient working capital;
- Establishing a structure that allows individuals to minimise income tax on profits;
- Protecting the business assets from any third-party claims;
- Flexibility to distribute income;
- Strategies to exit the business in circumstances that will attract the highest purchase price and minimise transactional costs; and
- Implementing a succession plan to allow for the orderly transfer of ownership to the next generation in circumstances of either a voluntary or involuntary sale event.
Some common structures that might own a business include a discretionary trust, a unit trust or company with shares owned by one or more family trusts.
Business owners also need to consider asset protection, ensuring that not only the appropriate structures are in place but that protections exist to mitigate the risks of financial loss in the event of any third-party claims or insolvency event.
Such structures will need to be compliant with relevant legislation including the Personal Property Security Act 2009 (Cth).
While there will be no one optimal entity or structure that accesses the benefits of all factors, business owners should carefully balance the advantages and disadvantages of each structure from a commercial and taxation perspective.
These principal considerations should be revisited and considered again at critical stages during the life of the business, particularly in periods in which the business may have encountered significant growth or during any period in which a succession plan is being implemented.
Subject to considering all factors, it may be beneficial to restructure the ownership of the business potentially accessing capital gains tax rollover exemptions in transferring a business or control over it into a new structure.
Business owners should also be aware that opportunities exist to own the business premises in various structures, including in a self-managed superannuation fund.
This may provide additional investment opportunities for individuals or members to a SMSF in providing for their retirement.
Disclaimer: Readers should seek independent legal advice as this article is for information purposes only. Daniel Cole is a director at Beck Legal, Bendigo.