Having the Right Structure
Choosing the structure that is the most appropriate for you is a matter of evaluating the structure’s ability to deliver on the following variables:
Cost of establishment and annual administration.
A Sole trader is an example of a low cost structure, whereas a partnership of Trusts is a much more complex and higher cost structure.
The level of Income Tax applicable to the entity during its operation.
A Company structure is able to provide a business with a capped tax rate and thus works well to provide a lower level of Income tax than some of the rates applicable to individuals.
Ease of transferring an interest in the business.
Transferability can be a concern if a business needs to have new owners that inject monies into the business and thus require equity in the business. A Company structure can be relatively easy to change an interest in the business by selling or buying a share in the company, whilst endeavouring to provide a share in a Discretionary trust is quite difficult.
The level of Capital Gains Tax on sale of the business assets.
As mentioned under the Capital Gains Tax planning section of the website various exemptions are available that reduce the level of Capital Gains Tax payable. By owning an asset in some types of structures these exemptions are made unavailable. As an example the 50% ordinary exemption is not available should a company sell an asset subject to Capital Gains Tax.
Degree of Asset protection afforded to the owner by the structure.
As the operation of a business can often involve some risk, choosing a structure that provides some protection to assets held by the owner outside of the business is a definite consideration in choice of structure.
Operation of a business as a Sole Trader affords the business owner no protection whatsoever; as the debts of the business are directly the responsibility of the owner i.e. there is no insulation at all from another entity. Whilst a Discretionary trust provides insulation from the debts owed by the trust, except for the provision of personal guarantees and some other circumstances.
As can be seen with the few examples discussed above, there can be some trade off with one structure offering a good result in some areas but a poor result in other areas. In the end the choice of structure will therefore come down to which issues out of the five listed above are the most important to you in choosing that structure.
At Bentleys we are able to assist you in establishing a structure that is the most appropriate for you. This may be in relation to a new business you are commencing or restructuring an existing business, which will also require an analysis of the cost of restructuring and how to minimise this.