Your Business Structure Was Chosen for a Business You No Longer Run
Most business structures are chosen once, at the start, based on what the business looked like then. A sole trader with a handful of clients picks the simplest setup. Five years later the business has staff, higher profit, more risk and possibly a second owner, and the structure has never been revisited.
Why the Right Structure Changes
Sole trader, partnership, company and trust differ in tax rates, liability protection, flexibility and cost to run. Which one fits depends on profit level, risk, how many owners there are, and what you plan to do with the business. Those all change as the business grows.
Signs It Might Be Time to Review
- Profit has grown significantly. Higher profit can change which structure produces a better tax outcome, particularly compared with the personal tax rates that apply to a sole trader.
- Risk has increased. More staff, bigger contracts, or more exposure to claims make liability protection more important than it was at the start.
- You have taken on a partner or investor. Ownership changes usually need more than a handshake and the original setup.
- You want to sell, or bring in the next generation. The structure affects what a buyer can acquire and what tax you pay on the sale.
- You are holding assets in the business. Property, equipment and intellectual property can sit more safely in a different entity from the one that carries trading risk.
What a Review Weighs Up
- Tax outcome now, and over the next few years.
- Liability and asset protection.
- Cost and complexity of running each option.
- The tax cost of changing, which can be significant, although some rollover relief may be available when conditions are met.
What to Do
- Note how the business has changed since the structure was chosen.
- Ask your accountant for a structure review, not only a lodgment.
- Get advice before you change anything, since moving assets between entities can trigger tax costs.
RBizz reviews structures against where the business is now and where it is heading. Get in touch if your setup has not been looked at since you started.
