Which Business Structure Is Best For Our Company?

Small Business BC provides conventional advice about business structures. The advice is OK as far as it goes, however this is a complex area and any professional will need to dig a little deeper into the specifics of your situation.

ABOUT ACCOUNTING AND LEGAL ADVICE

Some Key Observations

  1. The first few years of operation are high risk and very fluid. Structures can be changed fairly easily if your business model changes or you suddenly have new structural requirements.
  2. The benefit of limited liability for shareholders of a corporation may not extend to directors…and you are likely a director if you’re a founder. (see Directors’ liabilities when things go wrong – ASIC Australia Securities & Investments Commission – below)
  3. If you’re trying to obtain bank financing you’ll likely have to provide personal guarantees.
  4. Partnership structures are easy to get into – however you will be saddled with a ‘prescribed’ partnership agreement if you don’t explicitly draft a partnership agreement.
  5. If there is more than one “founder” of your business you might consider forming a corporation and having a shareholders’ agreement.

DIRECTORS’ LIABILITIES WHEN THINGS GO WRONG

While this publication is from the Australia Securities & Investments Commission, there are likely similar issues in your jurisdiction – get professional legal advice if limited liability is a significant reason you’re opting for incorporation as a business structure.