The 5 crucial steps to move to a company business structure

A company business structure is a popular business structure for Australian businesses. As an accountant and business coach we find ourselves recommending a change to a company business structure regularly. That doesn’t mean it is for everyone. We have created a 5 step process to help you decide and execute a new business structure for your business.

Step 1: Why should you move to a company business structure?

When deciding on a business structure is important to analyse why you should change. This is a crucial step in the process of moving to a company business structure. Your accountant or business coach will be able to provide specific insights for your business. Generally, the advantages of a company business structure include:

• A company is considered a separate legal entity under Australian law.
• A company pays tax at the company tax rate. Shareholders then receive the benefit of a “franking credit” for this tax paid when paying out profits in the form of dividends.
• A company has the advantage of limited liability, meaning that the debts of company are those of the company itself and not of the directors and shareholders, unless a director’s guarantee is signed or negligence on their part has been proven.
• Finance raising can be simpler
• Flexible expansion options
• Unlimited life (the business doesn’t cease if something happens to the owner)

Generally, the disadvantages of a company structure include:

• In addition to lodging a company tax return, the shareholders also need to lodge their own individual tax return.
• more costly business structure, a company provides many benefits to shareholders that other business structures do not, especially in the case of personal asset protection.
• Directors need to understand their obligations under the Corporations Act
• Insolvent trading risk affects directors personally

For a more thorough list you can find our blog on the pros and cons of business structures here

Step 2: Plan

It is important to create a plan for your business becoming a company. Your plan should outline your budget, responsibilities of both you and your accountant, the timeline for the process and the direction you hope to take your business in. We are firm believers in a strong and dynamic business plan. This phase is the perfect time to review (or create) a SWOT (Strengths, weaknesses, opportunities and threats) and some solid goals for your business. It is your chance to model the tax and financial implications of moving to a company structure to ensure it is the right choice for you and your business.

Step 3: Initiate the change of business structure

Initiating a change of business structure can be as simple as engaging your accountant to work you through the processes involved. Your accountant will have the expertise and experience to walk you through the process with a minimum of fuss. The Australian Securities and Investment Commission (ASIC) oversees companies in Australia and there are some strict rules around how they are administered. You will need to:

• Decide on the type of company
• Decide on rules or a constitution
• Chose a name for your company
• Select a business address
• Choose the company director(s) and secretary
• Choose a share structure
• Decide on shareholders

You can learn more about this process on our “Starting a Company” blog here

Step 4: Execute

Once your company structure is set up you will be ready to move into execution mode. You will need to create new bank accounts, provide your new ABN and ACN to relevant parties and register accounting software.

Step 5: Assess

At the end of every good process it is important to assess its success. Now is the time to look back at your business plan, think about and assess your goals and understand what went well and what didn’t. Did your budget blow out? Did the process take longer than expected? Did you meet or exceed your goals?

A company business structure, while popular isn’t for everyone. By following these crucial steps you should feel confident that the decision to change business structure is right for you and your business. Remember a blog is no replacement for solid and experienced advice, we recommend seeking professional advice and using your learnings to inform you towards the right decision.

Any advice in this blog is general in nature and is intended for information purposes only. For personalised advice please contact your accountant.