Are you debating between company versus trust business structures as you transition your business? Do you want to learn more about which business structures may be more suitable for your certain circumstances?Well, keep reading to learn more about company and trust business structures, their differences and in which situations you should choose them!
What is a company business structure?
A company business structure is a common type of business structure most large businesses and corporations adopt. The main characteristics of a company business structure is the fact that the business itself can act as a separate legal entity. This means that it has all the rights of any ordinary individual, such as being able to earn profits, incur debt, sue and be sued. This is beneficial for its members, as they have limited liability while still being able to shape the business profits.Other key characteristics of a company business structure include:
- * Requiring its members and directors to meet obligations dictated by the Corporations Act 2001
- * Being more expensive and complex than other business structures such as sole trader or partnerships
- * Being owned by shareholders and controlled by directors
- * Requiring an annual review (and also an annual review fee)
- * Limiting liabilities for company members
A company business structure is most suitable for businesses that are looking to expand into medium-sized or large sized businesses, and those that do not want to incu sole liability for a business. It requires individuals to understand the workings of their business in extreme depth, and be willing to sacrifice control over their business with larger set up costs.
What is a trust business structure?
A trust is a business structure which involves a trustee carrying out the operations of a business on behalf of the trust’s members (also known as beneficiaries). In a trust, a trustee is responsible for essentially everything - from income to losses, to how business profits are split between members of the trust. A trustee does not have to be a person, it can be a company providing some asset protection for the trust’s beneficiaries.Due to its complexities, trusts take longer than other types of business structures to set up, and usually require the assistance of a qualified and licensed professional.
Additional key characteristics of a trust business structure include:
- * Requiring a formal trust deed which details how the trust operates
- * Requiring a trustee to undertake all the formal yearly administrative tasks of the business
- * Legally protecting assets
- * Being difficult to dissolve or make changes to once rules and obligations have been established
- * Being expensive to set up and operate
Unlike a company business structure, a trust is not a separate entity. Instead, it maye discretionary or have fixed interests. Oftentimes, individuals may choose to operate a trust due to it being more tax effective in certain circumstances, and the limited liability trust beneficiaries can incur.
Choose the right business structure
Knowing the difference between a company business structure and trust business structure can spell the success of your business endeavours. For more information on the business structures you can choose from and their pros and cons, speak with a business accountant.