What you need to know before you change your business structure
We are often asked if you can change your business structure after your business has started operating. The short answer is yes. But no matter where you are in your business journey, we always recommend you seek advice, so you choose the appropriate structure for your business needs now and into the foreseeable future.
Choosing the right business structure from the start is always the most cost-effective way, but what happens if your business changes in an unexpected way once you’re up and running? It might be that your business grew faster than anticipated, or you may be considering taking a partner on board. These changes (and many others) could mean the original business structure you chose will no longer be suitable.
A new business structure can mean changes to your taxation structuring, asset protection and risk management,<> so it’s important to consider these and any other legal and administration requirements before making the change.
Here are some other aspects to consider.
Reasons for changing your business structure
There are a range of reasons which could see you changing the structure of your business.
BUSINESS GROWTH – With growth comes new financial considerations. The two of note are taxation and paying yourself. You could also find yourself dealing with national or global customers who expect you to be a company.
OWNERSHIP CHANGE – You may have made a decision to bring a partner on board (or remove a partner) and this could trigger a change in business structure.
OPERATIONAL CHANGE – If you’re streamlining departments or processes within your business, you may find that changing your structure assists with the changes you’re making.
DOWNSIZING – Not every business is looking to grow. If your business has been around for some time, you may even be considering downsizing to help manage it better.
Whatever your reasons may be, do your homework and seek advice to ensure the business structure you choose will meet your business needs and help it thrive.
Changing your business structure may be costly
Cost is a major factor when making a decision to change your business structure. But cost needs to be weighed up on two sides – the cost to change versus the cost to your business if you don’t. Sticking with a business structure that no longer suits your business can prove costly in the long run.
The costs to change may vary depending on the size of your business or how long you’ve been trading. There are also costs specific to the type of business structure you choose.
Here are some to consider:
- Capital gains tax
- Stamp duty
- Legal expenses
- Accounting costs
- ASIC fees
- Your time
A new entity may mean new legal and taxation obligations
SETTING UP A NEW TFN & ABN – Australian Business Numbers and Tax File Numbers are issued to individuals or entities and can’t be transferred. You will need to arrange cancellation of the old numbers and apply for new ones for your new entity. You may also have to communicate this change to third parties.
TRANSFERRING A BUSINESS NAME AND TRADEMARKS – You will need to transfer any business names and trademarks to the new entity. The Australian Securities and Investments Commission (ASIC) provides guides to help you facilitate the business name transfer and IP Australia is the department to talk to about trademarks.
OBLIGATIONS AS A COMPANY – If you’re moving from a sole trader or partnership arrangement to a company structure, you will need to register the company with ASIC and you will be bound by the Corporations Act. Make sure you’re aware of any new taxation and superannuation obligations as well.
AMENDING AGREEMENTS WITH THIRD PARTIES – Contractual agreements with employees, suppliers and customers may need to be changed if your business structure changes. Look for assignment clauses in your agreements that will allow you to assign the contract to the new entity rather than preparing completely new paperwork.
How to know what business structure is right for you
The decision around business structure isn’t entirely black and white. There’s asset protection, taxation, and risk management to consider, as well as your business goals and expectations. We go into more detail why business structure is important here but there’s no substitute for a review of your business from an experienced business advisor. Get the right advice to make sure your business is structured correctly for a secure and profitable future.
Your next step…
We can help identify your business requirements to make choosing a business structure easier and set you up for success. Speak to one of our business advisors on 1300 888 803 today or schedule an appointment by clicking here.
IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (VIC) Pty Ltd ACN 145 368 850. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (VIC) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (VIC) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (VIC) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (VIC) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.