Family business: Getting the structure right

Establishing the correct structure for a family business will prevent problems down the track.

Multiple factors, including the purpose of a family business, will determine which business structure is most appropriate.

Customising the structure of a family business with trusts, for example, is possible but can be complex to execute.

Accountants play a vital role in ensuring family businesses are correctly set up in the first place, but are also regularly reviewed.

In the excitement of starting a new family business, the question of what business structure to use may seem like a compliance tick box, rather than a strategic decision. However, operating as a sole trader, partnership, company, or something more complex can have important ramifications for tax, business funding, exit strategies and more.

You need to understand the full background of the business – the business type, the industry and intentions moving forward in terms of growth and expansion.

It’s also vital to develop a clear picture of the personal side including the previous business experience of the people involved, their intentions around bringing children into the business, what they hope to achieve in terms of lifestyle, what they enjoy doing in their lives and the purpose of the business.

Risk is a major factor

When deciding between sole trader, partnership or company structures, the potential business risks involved are key factors to consider.

The company structure is vital if you’re wanting to maintain a separation between business and personal assets.

Company structures also offer advantages in terms of growth options, allowing investors to buy into the business, and even credibility.

For investors, suppliers or banks, the company structure offers greater confidence.

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