Unincorporated, company or trusts – there is no shortage of business structures to use. The question is have you got the structure that is right for you? And right means not only right for now but also right for your plans for the future.
There is no one business structure that is right for everyone. So doing what a friend or colleague has done is not necessarily a good idea. We end up in business structures because they were appropriate at the beginning or based on advice you may have received from your accountant or lawyer.
There can be a range of competing tensions around what is the best structure – risk management, tax effectiveness, costs, succession friendly and control. In selecting a structure there are likely to have been some tradeoffs between these features.
If you are looking to grow your business significantly or if you are preparing for sale or retirement then structure is something you need to get right.
Changing structure can be expensive but there are times when a change of structure can make perfect sense. The key is to know what your requirements will be going forward and if any changes do need to be made to make them at the right time. Last minute changes are rarely a good idea.
Here are 4 questions to consider about your structure to determine whether it will be the right fit for your future plans:
1. If you operate through a company do you have different share classes on issue?
If you are not sure or you answered yes to this and you are contemplating a future sale of your business you may need to address this issue. Where there are different share classes on issue and you do not have at least 20% of every share class, your access to CGT small business concessions may be prejudiced
2. If you operate through a discretionary trust, who is the Appointor of the trust?
If you’re not sure of the answer to this question – it’s a good idea to find out. This may be the person who effectively controls your trust.
3. Are you likely to want to introduce other investors into your business?
If you answered yes and you operate through a family trust then this may be a problem. Typically a family trust will be a discretionary trust. The beneficiaries do not have fixed entitlements. And you cannot introduce unrelated beneficiaries.
4. In any future sale of the business or an interest in the business do you expect to utilise the CGT small business concessions to reduce your tax exposure?
If yes then have you checked on your eligibility and which concessions would be available to you.
Growing or going, or simply wanting to make sure that your structure is as effective as possible – it is a good idea to review this with your professional adviser.
Greg Hayes is the national chairman of accounting group Hayes Knight. In addition to their accounting services they also provide practice support to accounting firms and a financial services model for delivery through the accounting profession. Greg is also the author of ‘A Practical Guide to Business Valuations for SMEs’ (CCH 2013).
