The way a business structures itself has substantial implications for the success or otherwise of that business. The chosen structure impacts on every aspect of the business’s functions, including things like how its profits are distributed and taxed, how the business raises its finance and how the business is passed from one owner to another.
In this section of the Dover Way, we introduce the main ways in which a business can be structured. The advantages and disadvantages of each type of business structure are discussed.
When it comes to choosing a business structure, the old maxim ‘measure twice, cut once’ is one that should be followed. That is, it pays to settle the decision about structure before the business commences operations. Once a business has commenced, it can be difficult to change its structure without triggering taxation and other penalties. This is especially the case where a business is profitable.
Accordingly, we urge caution whenever a change to a business structure is being considered. Such a change should only be made following consultation with appropriately qualified people. At a minimum, this would include a registered tax agent. It is likely also to include a legal adviser. MLA Lawyers is available to assist any of our advisers seeking advice or guidance with any issue to do with business structures.
The need to think through the appropriate business structure before the business commences is good news for advisers, whose experience and expertise allows them to foresee issues that clients may not be aware of. This includes things like succession planning, asset protection and tax optimisation – just three of the various things of which most business owners are unaware.
The following pages contain information that can be used by advisers themselves when structuring their own operations, or to inform advisers who are seeking to advise clients about the best way to establish and operate their own small business. As discussed in Part 4 of the Dover Way, businesses are typically the best investments a client can make, and so we urge all financial advisers to educate themselves such that they can competently and confidently assist clients to establish their own business.