Choosing the Right Business Structure for Your Startup

When starting a business, selecting the most suitable structure isn’t just about following a set of rules - it’s a balance of strategic thinking and practical decision-making. The process requires careful consideration of various factors that can significantly impact your business’s growth and stability. At Symmetry Accounting & Tax, we provide expert business advisory services to help you navigate these choices. Below, we explore key considerations when choosing the right structure for your startup.

Separate Risk from Wealth

One of the fundamental principles when determining your business structure is to protect your personal wealth from the risks associated with running a business. When establishing your business, you should first decide what assets you are willing to expose to risk. Failing to maintain this separation could put both your business and personal assets in jeopardy.

An easy first step is to ensure that the ownership of personal assets, such as your home, is separate from the operation of your business. This can be achieved by having one person hold personal assets while another person runs the business. You can even structure it so that the homeowner lends capital to the business, secured by business assets, such as intellectual property or inventory.

As the business grows, it’s advisable to consider forming a company with limited liability. This keeps business risks contained within the company while protecting the personal wealth of the owners. It's also possible to go a step further by using a dual-entity structure, where the business operates under one entity, and business assets are held in a separate entity. This dual structure can be complemented by proper legal protections, such as PPSR registrations, to ensure your assets are secure.

For even greater protection, a trust can be added to the structure once the business’s value increases, creating an extra layer of protection. This approach ensures both personal and business wealth are safeguarded from potential risks.

Tax Efficiency for Growth

Tax planning plays a crucial role in your business’s financial strategy. As your business evolves, it's essential to structure it in a way that optimises tax efficiency. Early in your business’s journey, you may face losses. It’s critical to decide whether to offset these losses against other personal income or carry them forward for future use.

If your business operates through a company, you might also be eligible for R&D refundable offsets, which can be claimed under specific conditions. It’s important to understand how your business structure affects your ability to claim these benefits.

As your business becomes profitable, your next concern will be minimising tax liability. To achieve this, it’s important to:

• Maximise allowable deductions.

• Spread profits among multiple taxpayers to reduce the overall tax burden.

• Structure your business in a way that allows you to benefit from the lower corporate tax rate of 25/30%.

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One effective method for doing this is to run your business through a company, with ownership held via a trust.

Planning for Future Sale and Capital Gains Tax (CGT)

If you’re considering selling your business in the future, structuring it to minimise capital gains tax is essential. A well-thought-out business structure can significantly reduce the tax liability upon the sale of your business.

For example, if your goal is to sell your business in the medium term, ensure your structure allows you to be taxed on the capital account (which typically results in lower tax rates). Additionally, the Small Business CGT Concessions can further reduce or even eliminate tax on the sale if the conditions are met.

Understanding who might be interested in purchasing your business is also essential. Large corporations typically prefer to acquire equity (i.e., shares) in a business, which is simpler when operating through a company structure. Conversely, small-to-medium business owners may prefer to acquire assets directly, which might call for a more “transparent” structure like a trust.

It’s also important to keep in mind that the 20% ownership threshold for CGT concessions can play a role when structuring or selling equity in your business.

Funding Your Startup

As a startup, there are three primary sources of funding you can explore:

• Equity: This comes from your own capital or that of friends and family.

• Debt: Typically sourced from friends, family, or financial institutions.

• Suppliers and Future Revenue: Trade credit from suppliers or revenue from key customers.

  
  

When seeking funding, it’s essential to present your business structure clearly. More complex structures can make it harder to attract funding, especially at a reasonable cost. For instance, if your business involves a discretionary trust, you need to ensure that any funds lent to the trust come with appropriate interest charges that align with your personal funding costs.

Get Expert Advice

Choosing the right structure from the outset is critical, as changes down the line can be costly and complex. Seeking professional guidance from an experienced accountant and business advisory team can save you time, money, and potential headaches in the future.

For expert advice on business structures, tax planning, and risk management, contact Symmetry Accounting & Tax in Perth. Our experienced accountants can help you make the best decisions for your startup’s long-term success.

To get started, call us at 0420 970 369 or reach out via email.