Choosing the Right Structure for Your Business is Critical

Get it Wrong at Your Peril.

The best structure for your business and your business objectives can get complex so we recommend you take specific advice for your circumstances (See our FREE offer below). The following scenario highlights the two primary considerations for your structure decision; Risk and Tax Planning.


Risk should be your primary consideration. Why? Because this is the thing that may cost you everything you own. Every business carries with it a level of risk, some of it can be insured but insurance does not always cover every single possibility. Let me give you an example (This is an extreme example to demonstrate our point):

Bob operates a photography business. Low risk, right? While taking a photo of a $300,000 Ferrari he accidentally left the brake off. Although his shots of the car rolling off the cliff went viral, the owner was less than impressed. She sued Bob's business and it was ordered to pay his client $300,000 in damages.

How Would Structure Affect This Outcome?

Sole Trader Outcomes:

  1. All Bob's expensive business equipment is sold to meet his liability.
  2. Bob has to clean out his personal savings accounts to meet the liability.
  3. Bob has to sell his house to meet the liability.
  4. Bob's family are forced to move into rented accommodation and Bob can no longer run his business or earn an income.
  5. If the funds available from the above outcomes are insufficient to meet the full $300,000 (plus his legal costs) then Bob may be working for his client to pay the balance off over time or may be forced to declare bankruptcy. Neither are ideal outcomes.

Company Outcomes:

  1. Bob is forced to pay his $100 in unpaid share capital to his company. Those funds are applied to the business debt.
  2. The company bank accounts containing $1,000 are closed to pay the business debt.
  3. The company has no other assets.
  4. The company is liquidated and the matter is at an end.

The Bonus Outcomes for Bob:

  • Bob owns his own camera gear personally so get's to keep it and can continue trading his business tomorrow under a new company.
  • As an employee of the company, Bob is not personally liable for his error so his family stays in their lovely family home.
  • Bob get's to keep his savings and takes his family away on a cruise to reward them for the stress of the claim.
  • Bob may never have to engage a lawyer to fight for him in court because he has no need to defend the claim against his business.

This is a fictitious scenario and is very much simplified but the outcome is clear: The right structure can save you a lot of time and grief.


The second consideration is tax. Based on Bob's new business earning $80,000, this simplified example shows the different tax outcomes:

Sole Trader

Taxable  Income $80,000

Tax Payable* $17,547 (22%)

Income Streaming Flexibility - None


Taxable  Income $80,000

Tax Payable* $24,000 (30%)

Income Streaming Flexibility - Some

Discretionary Trust 

Taxable  Income $80,000

Tax Payable** $8,824 (11%)

Income Streaming Flexibility - Complete

* Based on 2015 Income Tax rates ** Based on distributions to two adults and two minor children

What You Can do to Avoid Bobs Plight

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