Business Structure

It is important to understand the different business structures that are available prior to commencing a business operation. The selection of a business structure usually centres around two issues: tax advantages and asset protection/limitation of liability advantages.

Often, the structure of the business operated by clients exists by default and exposes clients unnecessarily to personal liability: that is, as the business grows and the client’s asset base expands, the business structure does not change. As such, it is important to consider from the outset the intention of the business and to select the most appropriate form of structure.

A partnership will exist where two or more persons (which can include two or more companies) carry on business together with a view of obtaining a profit. At law, the act of one partner will bind the other partner, and it is important to understand the implications that can flow from the act of one partner entering into a contract on behalf of the partnership, even where the other partner did not know about the contract. Additionally, where the partners are individuals, there is no protection of liability that will exist: that is, the individual partners will be personally liable for the debts and acts of the partnership. As such, care must be taken when considering entering into a partnership business arrangement.

Alternately, adopting a company structure will assist in the protection of individual liability. Provided each of the directors are not in breach of their director’s duties, and provided there are no personal guarantees given by the directors or shareholders, then the liability of the directors and shareholders can be limited, offering protection to those individuals and their assets.

Depending on the business and the intention of the owners, there are numerous business structure options available, which can include a mix of partnerships, discretionary trusts and companies. Duffy & Simon is able to advise on the most appropriate form of structure for your business.

A discretionary or family trust is an entity established to hold assets on behalf of a selected group of people or family members. Typically, these trusts are established for the purpose of protecting assets that may be at risk in the operation of a business by one or more of the family members, or to allow profits that arise from the operation of a business controlled by the trust to be shared between selected members of the group.

A discretionary or family trust also has the benefit of protecting assets in estate planning, allowing issues associated with the challenging of a will to be avoided.

It is important to understand the benefits, costs and limitations of adopting a discretionary of family trust structure before that trust is established. Duffy & Simon is able to review your circumstances, and advise you on the suitability and benefits of establishing a discretionary or family trust.

When running a business, it is important to understand the obligations and entitlements of all of the business owners. A Shareholder’s Agreement sets out what each shareholder’s rights and obligations are, both to each other and also the company.

It will detail what is expected when things are going well, but also what will occur when one party wishes to exit the business or where there is a dispute amongst the owners. Without a Shareholder’s Agreement, it is difficult to establish these issues, and will make any future sale or dispute more complicated and more expensive to resolve.

It is important to understand the different business structures that are available prior to commencing a business operation. The selection of a business structure usually centres around two issues: tax advantages and asset protection/limitation of liability advantages.

Often, the structure of the business operated by clients exists by default and exposes clients unnecessarily to personal liability: that is, as the business grows and the client’s asset base expands, the business structure does not change. As such, it is important to consider from the outset the intention of the business and to select the most appropriate form of structure.

A partnership will exist where two or more persons (which can include two or more companies) carry on business together with a view of obtaining a profit. At law, the act of one partner will bind the other partner, and it is important to understand the implications that can flow from the act of one partner entering into a contract on behalf of the partnership, even where the other partner did not know about the contract. Additionally, where the partners are individuals, there is no protection of liability that will exist: that is, the individual partners will be personally liable for the debts and acts of the partnership. As such, care must be taken when considering entering into a partnership business arrangement.

Alternately, adopting a company structure will assist in the protection of individual liability. Provided each of the directors are not in breach of their director’s duties, and provided there are no personal guarantees given by the directors or shareholders, then the liability of the directors and shareholders can be limited, offering protection to those individuals and their assets.

Depending on the business and the intention of the owners, there are numerous business structure options available, which can include a mix of partnerships, discretionary trusts and companies. Duffy & Simon is able to advise on the most appropriate form of structure for your business.