Thinking of operating your own business?
Have you considered the following matters?
What type of structure should I use to operate my business?
There are several types of structure which you could use to operate your business. They are as follows: as a sole trader, as a partnership, as a company or as a trust. Each has their own advantages and disadvantages.
Simple and inexpensive to set up, giving you complete control over your business. If your business does well, however, you might be placed into a higher tax bracket. It can be difficult to organise holidays or cover periods of prolonged injury or illness unless you have very reliable staff. You also wear all of the risk.
Can be simple and inexpensive to operate, however, consideration should always be had to having a Partnership Agreement setting out the rights and responsibilities of the partners from the outset. A well-defined Partnership Agreement can have many benefits including avoiding disputes before they cause harm to the business. If a partner dies, becomes bankrupt or leaves then the partnership is automatically dissolved.
A partnership which works well has many advantages. Partners are able to cover for holidays or prolonged periods of injury or illness. Partners enjoy the benefits of having additional skill sets and splitting the risks associated with the business.
Although liability between partners is generally joint and several some exceptions to this rule can occur with a clearly defined Partnership Agreement.
Unlike a partnership a company is a separate legal entity able to hold property in its own name. It is currently taxed at a fixed rate of 30%. A director can be remunerated for his services to the company in the form of a wage and shareholders can receive dividends, being a payment out of the profits (should a dividend be declared). Small Proprietary Companies are probably the most common type of company with a sole director and a sole shareholder.
Provided a director has not traded whilst the company is insolvent or signed any personal guarantees they are generally protected by the "corporate veil" from creditors should the business fail.
The cost of setting up a company can be a bit costly and the obligations upon directors are generally higher. Further, if there are going to be multiple directors and shareholders having clearly defined rights and obligations will be essential.
A trust is run by a trustee for the benefit of the beneficiaries which can be a class of people. A trust can either be fixed or discretionary. A discretionary trust is, however, generally preferred as it provides flexibility in distributing wealth. The cost of setting up a trust varies depending upon complexity. A trust does, however, have a limited life (usually 99 years). Being able to distribute income to a range of family members can have its benefits but the shared wealth comes with one risk – do you trust your family?
Will I have standard terms of trade?
Many businesses often forget to create a standard set of terms and conditions. Having standard terms and conditions can be important because it can limit your liability in certain respects and improve your chances of recovering your fees for services rendered or the cost of goods supplied.
If it’s worth doing then it should be worth doing right.
Do I need a Will?
Everyone should have a Will but this is particularly important if you have a business or sizeable assets. Without a Will your estate can be left in uncertainty and it may take substantially longer for your affairs to be dealt with, which may in turn affect your business.
Do I need a Binding Financial Agreement (“BFA”)?
A BFA is an agreement between two people that deals with how their assets and liabilities are to be dealt with in the event that their relationship comes to an end. These agreements are very costly and involved but can avoid issues later on. Some people often use the term "Pre-nuptial Agreements" when they actually mean a BFA.
Without a binding BFA the Family Court will usually have jurisdiction over the dissolution of the relationship. Family Court proceedings often take a hefty toll on the parties involved and businesses are usually caught up in the proceedings because they are often considered to be an asset of the relationship.
A BFA can be set aside in certain circumstances and it is essential that you get legal advice before entering into one.
The above can be a lot to consider and you ought obtain legal and accounting advice before establishing your business, deciding where and how you will operate your business and whether or not you will be starting a new business or acquiring an existing one.
Why not minimise your concerns and risks and help your business to succeed by seeking appropriate advice. Obtaining appropriate advice from the outset can save you substantially more in the long run.
Speak to one of our friendly team as we can assist you in these types of matters.