When to restructure: signs your business has outgrown its structure

Most businesses start with the simplest structure that works: a sole trader, a partnership or a single company. That is usually the right call at the start. The problem is that the business grows and the structure does not.

Profit is growing and you are leaving money in the business

A sole trader or partner pays tax on every dollar of profit at their personal rate, up to 47% including the Medicare levy, whether the money is spent or kept in the business. A company pays 25% if it is a base rate entity (aggregated turnover under $50M and no more than 80% passive income), otherwise 30%. If you are reinvesting profit, that difference matters every year. Company tax is not the final tax, though: when profits are paid to you as dividends, you pay your personal rate less the franking credits.

Your property and your business are in the same name

If the trading business owns the premises, the trucks or the equipment, a single claim against the business can reach all of them. Holding assets in a separate entity and leasing them to the business is one of the most common ways to separate the risk.

Someone is joining, or you want to bring family in

A new partner, an investor or a family member taking a share all need a structure that makes ownership, profit sharing and a future exit clear.

You are planning to sell

How the business is held decides which concessions are available when you sell. Companies do not get the 50% CGT discount; individuals and trusts can (on assets held for 12 months or more). The small business CGT concessions have their own tests: a turnover or net asset test, the active asset test and, for share sales, the significant individual tests. Looking at this two or three years before a sale is far better than two months before.

What a restructure involves

This is general information, not advice for your situation. Every business is different; a strategy call is the best place to start.

• A review of what you have and what you want to achieve
• Options with the tax costs worked out: CGT, stamp duty and any roll-over relief
• Setting up the new entities and moving contracts, staff, bank accounts and registrations in order
• A yearly check that it still fits