Structuring is easy
At a very recent meeting, an advisor boasted "I can set up a structure for this business in a couple of minutes" This was surprising given the complex ownership arrangement and the amount of experience the advisor possessed.
The process for commencement of a business can be somewhat compared to building a house. Without a strong foundation, the house may not offer the safety and security that a family may expect. Likewise, the business needs to be setup with a structure that accommodates growth opportunities and succession planning whilst limiting the risk to the business and non-business assets of the individuals involved.
Often the clients do not realise the importance of the right structure at the outset. Potential business owners do not budget for advisory costs which often results in them putting pressure on the advisors to offer cheaper/vanilla structures with a one size fits all approach.
Whilst there is nothing wrong with coming up with the initial structuring recommendations early in the discussion, it is critical to test the structure for implications to ensure that the resulting outcomes are not a surprise. It is common to let the process guide you towards the final structure that the client may end up with.
Does this mean that the business should invest in obtaining a structuring that would be faultless for all circumstances?
No! Generally, you will need to prioritise the objectives which are the most important and significant to the organisation but be made aware of the possible other implications.
Advisors would agree that to rearrange a business structure is a costly exercise. What do they mean? They are not referring solely to the advisory costs.
The costs to correct the structuring errors are not limited to taxation (State and Federal) but include costs in relation to the business interruption, administrative changes and restructuring of financial arrangements amongst others.
What do you need to consider when selecting a suitable business structure?
- Type of business and growth potential;
- Funding strategy and cost of capital;
- Industry requirements;
- Ownership structure;
- Succession planning;
- Asset protection;
- Profit (or loss) sharing and drawings or salaries;
- Annual taxation implications;
- Exit strategy and capital gains tax;
The factors to consider when restructuring a business are no different but you also need to understand the implications of exiting the current structure and manage the existing business risks such as suppliers, customers, employees, banks etc.
At PKF Lawler, we can assist you with understanding the implications of various choices to be made and the ongoing obligations to put you in charge of your business. To see how we can assist you, please contact your local PKF Lawler office or any of the PKF Lawler contacts in this website.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.
Malav Oza CA, CTA
Manager | PKF Lawler
Level 1, 2 George Wiencke Drive
Perth Airport WA 6105
T: 08 6272 6888
F: 08 6272 6999
E: [email protected]