Should your venture operate as a sole trader, partnership, company, discretionary trust, unit trust, a company with a discretionary trust as a shareholder or a of combinations of these?
To make this decision you need to work out what your priorities are.
The major drivers when choosing a structure include but are not limited to:
- Asset protection – are your personal assets exposed to creditors and lawsuits?
- Legal minimisation of income tax.
- Minimisation of potential capital gains tax on future disposal.
- The ability to utilise and carry forward losses.
- Family considerations – is the business to be conducted by one family or a number of families. Is the business to be passed down the generations and is income to be distributed to family members?
- Does the entity need to be flexible to allow parties to enter and exit the venture?
- Do the owners of the entity understand the structure and what the cost of administering that structure is?
- Will the business derive income from the provision of personal services of the principal? Generally, personal services income cannot be split, for example, with a spouse.
- Will the business or investment have significant assets? Should the assets be held in one entity whilst the operating business utilises another entity?
- Does the business venture have a high risk exposure from a legal suit?
A client needs to consider what their priorities are when considering what operating structure is to be utilised.
It may be that tax is not the main focus of a structure. In many cases, asset protection is more important for some clients.
The clients may have other priorities such as the provision for family members, the ability to increase their retirement savings.
Some structures expose the proprietors to personal liability whilst other structures provide insulation from personal suit.
Accordingly, the structure should be tailored to meet the client’s priorities as best as it can.
Unfortunately there is no one entity that satisfies all of the above considerations.
If you are thinking of establishing a business or new venture, we at Everingham Solomons have the expertise to assist you because
Helping You is Our Business.
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