You started your business many years ago and you’ve built a successful business. This success has you thinking about the future of your business and if you need to look at change the legal structure (i.e. restructuring). There is not a ‘one size fits all’ approach when considering restructuring your business. There are numerous issues to consider and not all of these will have equal importance to all people. Some of these issues are outlined below.
Taxation of Income
The taxation of income and who has the liability to pay that tax varies greatly depending on the structure you choose. As a result, the tax rate can vary between 0% to 47% for individuals and 27.5% to 30% for companies. If using a company, consideration needs to be given to payment of dividends to shareholders and franking credits attached to the dividends.
Liability of Owners
The personal liability of an owner varies greatly depending on the business structure used.
A sole trader or partner in a partnership has unlimited liability for all the debts of their business. As a result, any personal assets of the owner are at risk should the business fail.
In respect of a trust, it is the trustee that is responsible for the debts of the trust. Choosing an appropriate trustee is another very important decision.
With a company, a shareholders’ liability is limited to the amount they agreed to pay for their shares. No claim can be made against the assets of the shareholders. Directors of a company need to understand their personal responsibilities and risk of liability should the business fail.
Protection of Assets
All business owners need to consider the protection of assets relevant to the business. It may be important to hold an asset, or group of assets, in a separate entity from the trading operations of the business.
Restructuring Costs
There may be costs involved in transferring a business from one type of ownership structure to another. Some of these costs include
- Capital gains tax on the sale/transfer of the business assets. Exemption or concessions may apply
- Duty on the value of assets transferred including goodwill. Duties vary from state to state
- Incorporating new entity structures and on-going costs
- Business valuations
Succession Planning
At some point in the future you may wish to sell your business, invite other investors to participate in ownership of the business or transfer ownership to family members. The structure you choose needs to make it easy to implement your exit strategy in the future. Your succession plan will also need to consider any potential tax liability that may arise on the change of ownership, which will vary depending on the exit strategy chosen.
When considering structural change is it very important to understand why you are changing and what you are aiming to achieve with your new business structure. The decision on how to structure your business for the future is a complex and important one. We recommend you speak to the experienced team at Accru if you are considering restructuring your business.
Everyone’s situation is unique. Contact your local office and see how Accru can help you.
