It is important to choose a suitable structure before you start up a new business. An incorrect choice at the start may be costly to change later on.
Sole trader is the simplest operating structure available. It suits those small businesses operated by one person. You just need to keep proper business records, file appropriate tax returns.
The significant downside of trading as sole trader is that a sole trader has unlimited liability for claims, such as negligence and business debts.The owner may have to sell personal asset, such as their home to to pay off business debt.
Partnership are individuals who trade together under a business name without setting up a company which means it is inexpensive, quick and easy to set up.
The main disadvantage is that each partner has unlimited liability for the partnership debts and for any fraudulent or negligent activities of the other partners. Also any unresolved disagreement between the partners can, and often does, lead to dissolution of the partnership.
The significant advantage over sole trader and partnership is that company is a seperate legal entity and shareholders have limited liability.
A disadvantage of using a company is the on going administration and annual reporting requirements.
A Trust has the advantage of protecting family assets and passing on assets to the future generations.
The downside of using a trust is loss of ownership of the assets and extra set up and compliance.
Separate legal personality which means Limited liability for the limited partners.
They can be used for almost any purpose and are particularly suited for projects that are high risk, capital intensive and/or with overseas investors.
Details of the limited partners and partnership agreement are confidential.
Overall, which structure suits will depend on your own situation. However, a combination of structures can also be used in the ownership of one family business.
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