It’s probably fair to say that when you started your business, whether 5 minutes ago or 30 plus year ago you likely did so for a multitude of reasons – however I can be fairly sure that one of them was to earn a good living and provide for yourself and loved ones in the present and into the future.
If that’s true then it really is an important consideration to determine if the structure you will trade through (sole trader, partnership, a trust of some type, a company or some multilayered structure) is the best option for you – given your overall objectives.
I was talking with the business owner of a long established business recently and in the course of our conversation, business trading structures came up. I was flabbergasted to discover that he had been operating as a sole trader all these years and when I asked why he said that it was what they started out with all those years ago and he’d never reviewed it because it was simple to administer.
When I mentioned that, God forbid, in the event of the business going bad (for whatever reason) his personal assets would be a risk, there was a momentary noticeable reaction followed by the typical Aussie attitude of “she’ll be right mate” after all “I’ve been here all these years and it’s ok.”
Sure…it’s been ok to date…but do you really want to take that risk particularly when it’s unnecessary.
I’m sure that the former businessman (now employee) who I was talking with on my way to the airport recently wished he’d taken action….since after buying a couple of franchises and doing ok for a while things took a turn and late last year he lost his house and has racked up a large debt with the ATO and is now considering bankruptcy.
And while I know that you believe that nothing’s going to happen to your business….
Consider the case of Barings Bank. A firm that had been established in 1762 until its collapse in 1995 due to rogue trader Nick Leeson. Or indeed consider, the world wide Arthur Anderson Accounting firm that came undone because of Enron.
Hmmm do you think you ought to at least investigate where your vulnerabilities are and consider taking informed decisions to minimize their impact?
You see as the business owner you need to consider and manage risk. That includes external forces over which you have little control.
Therefore in my view it makes perfect sense to ensure that your personal and business assets are separated legally and held in different structures appropriate to your individual circumstances.
And please let’s get one thing out on the table and be clear about it.
The primary motivation of setting up any business structure should not be motivated by your desire to save tax at least not unless you want to have the personal attention of the Australian Taxation Office!
However there are many other reasons for structuring your business right and these include asset protection; succession and estate planning and well along the way, you may well find that your business has legally minimized its taxation obligations.
So I can hear you ask, “What about me and my business if I am already operating say as a sole trader or partnership – what can I do?”
Well you can speak to your Accountant and/or Lawyer about reviewing your current trading structures and making changes if appropriate.
However, transferring the assets from one structure to another may create Capital Gains Tax (CGT); Stamp Duty or other taxation obligations.
This is a complicated area and every case will be different. Therefore you must seek specialist professional advice.
And your advisors may end up advising you that the transaction costs associated with making the changes are prohibitive. However, that does not stop you from establishing a new structure and putting all new business or other asset acquisitions into that structure.
“I’m just starting out in business and my budget is tight – what should I do?”
My personal view is that getting professional advice about business structures and choosing one that suits you is money well invested. Yes it may well cost you anywhere from $900 to $5000 or more depending on the complexity but really it’s nothing compared to the peace of mind knowing that your personal assets are safe from the clutches of creditors should something untoward happen with your business.
PS: The information in this article is general in nature and you should seek professional taxation and/or legal advice pertaining to your particular situation before taking action. The Right Team, does not offer such advice, however, if you are not sure where to turn – send your name, business name and phone number and topic of interest (structures; asset protection) by email to bizstructures@rightteam.com.au and I will have one of the professionals from within my trusted network make contact with you on a confidential, no obligation basis.
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This column was compiled by Paul Wright from excerpts originally published by Damien Parker, Publisher of the subscription only Positive Business Newsletter & Information Service. The Right Team, Sales Strategists & Business Improvement Specialists, ABN 49006 576 564 ACN 110 466 138 Tel: 1300 66 44 89, have worldwide licensing & distribution rights for the Positive Business Newsletter. Visit our new website www.rightteam.com.au
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