How should I structure my new business?
So, you’ve tested your business idea with family and friends, and it’s getting traction — what’s next?
Before you dive into trading, you need to think about your business structure. Like building a house, your business needs a solid foundation and that foundation is your business structure — and choosing the right one early can make all the difference later;
Your structure choice will dictate your outcomes later particularly how much tax you pay each year or on a business sale.
Changing your business structure later will cost you more money every time.
Always seek professional accounting advice, we are fortunate our Principal adviser is both a Chartered Accountant and Certified Financial Adviser, here we are providing some general observations of the most common outcomes we see, this information is given with the disclaimer that each business should be advised on its individual facts and circumstances and that within each structure there is often choices that tailor the outcome to your needs.
Business structure options include: sole trader, partnership, company, and trust (discretionary and unit trusts).
But in today’s landscape, it’s common to combine these into hybrid structures to get the best of all worlds.
Our,
Getting Started: 2 great options:
If you’re launching a small business with limited capital, we usually see two core structures make the most sense:
A company owned by one or more trusts – what we often call a company structure.
A company acting as the trustee of a trust – what we refer to as a trust structure.
In both setups, a company is essential because it offers limited liability — a key legal shield that protects your personal assets (like your home) if things go wrong.
How to Choose: Is your business plan seeking Profit or a Sale/Exit?
Your structure choice can depend on your goals:
Want to build and sell your business in a few years?
A trust structure may be preferable. Trusts can offer better access to capital gains tax (CGT) concessions when you sell assets.
Looking to operate long-term and earn profits?
A company structure is typically more tax-effective. You’ll benefit from the flat company tax rate, and if the shares are owned by a trust, you can also distribute dividends to family members tax-efficiently.
The above is a practical starting point, call us or your adviser for a consultation and advice.
What About Intellectual Property?
Let’s complicate things slightly.
If you’re developing IP like Software, code, or designs (protected by copyright or patents), a company is usually the best place to hold these.
Why? Because these assets are treated as revenue assets, and selling them from a trust may not qualify for CGT concessions but if you sell the shares in the company that owns them, you may access those concessions.
On the flip side, if you’re building goodwill, branding, or trade marks, it’s generally better to hold these in a trust. Selling them from a company can limit your access to CGT discounts.
Basic conclusions:
Here’s a simple framework to help you think through your decision:
You want to include a company – It gives you limited liability protection and looks more credible to clients, investors, and lenders. If spending ~$1,250 to register a company feels too steep, that may be a red flag about your commitment.
Consider including a discretionary trust for income splitting and capital gains outcomes, a trust is flexible and can access the CGT discount and small business concessions.
Some structure scenarios:
If your goal is long-term profits and not necessarily a big sale:
Use a company structure.
Own the shares via a family trust to access income splitting and asset protection.
If your goal is to sell the business in the short to medium term:
If selling to a large buyer, use a newly incorporated company and aim to sell the shares (this will reduce the CGT you pay).
If selling to a small business buyer, use:
a trust if the value lies in goodwill or branding, or
a company if the value lies in IP like code, patents, or registered designs.
Doing both? Set up a dual-structure:
A company for trading and revenue-generating assets.
A trust for capital assets like goodwill or IP, licensed to the company under a formal agreement.
Advice is needed when you understand how versatile the business structure is and how it will dictate your outcome later, this is a large part of the consultancy we do at VJC, we are here to help.
General advice disclaimer General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC and VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement for this purpose.
