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How To: Your Business Plan – Part 10. Business Ownership Structure

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How To: Your Business Plan – Part 10. Business Ownership Structure


For some, their business plan is only in focus when it’s needed – during times of investment, or changing ownership – but this document should always be by your side to guide you through the evolution of your business no matter where you are in your growth journey.

For all types of businesses, it’s essential to be clear on your ownership structure, and to understand how this will impact you, your shareholders and the business as a whole.

Your business ownership structure will detail who owns what within your business, and this will be a critical section for future investors, or for you to review if you’re in the process of purchasing a business with a company structure where there are multiple shareholders involved.

Business Ownership Structure

The common types of business structures include sole trader, partnership, and company – one of these will fit your business best. You’ll only need to include an ownership structure section in your business plan if you’re identified as a company or a partnership – if you’re a sole trader, this part is not necessary.

A partnership structure means that two or more people operate the business as a partnership – it’s a simple set-up and often relatively low cost to establish. The key disadvantage to partnership is that it requires all parties to jointly take responsibility for business debts, and the actions of your business partner can greatly impact you (and vice versa). A partnership agreement should be included in your business plan for this reason, detailing how the partnership will function (this is also known as your deed of partnerships).

A company structure is ideal for high-risk businesses (these include bank and merchant account providers, construction and mining, and pharmaceuticals), where your individual shareholders will only be liable for debts or liabilities that your business incurs up to the total unpaid on their shares (and usually this will be zero) – in essence, companies mean limited liability.

As a company, you’re empowered to raise funds and grow when you issue shares, and it’s often the most popular for startup businesses. Within Australia, The Corporations Act regulates companies on home soil, and it’s essential to follow their statutory obligations and Constitution or Replaceable rules.

Directors

Most relevant for companies, begin by listing all of your directors (you may like to also include a short summary of their professional expertise, but this is not necessary). To complete this, add in any director investments, liabilities and share of profits.

Other Shareholders

In the same way, detail all company shareholders – you may also like to include links to other relevant appendix documents such as your shareholder’s agreement or percentages of ownership – again, this should make it clear to a potential new investor where they might sit if they choose to invest in the company.

Choosing Your Business Entity

Of course, you may be somewhere in between two business structures and looking to make a change. For this, it’s important to consider several factors, first is legal liability. Does your business lend itself to potential liability (like the above-mentioned high-risk businesses), and (if you are currently a sole business owner), can you afford this risk on a personal basis?

If the answer is no, and you’re looking to ensure you can protect personal assets, then a company might be a good option for you.

Also consider the tax implications of your business entity (you can find more information about Australian business structures by visiting www.business.gov.au), as well as ongoing administration costs and flexibility options. Finally, reflect on how your business is operating today, and where you see yourself within the business in 10 or 15 years’ time – are you planning on still being around as a sole trader or one of a small number of key partners?

Making these decisions takes time, and no two businesses are alike, but it’s best to layout these considerations while you flesh out your business plan, so you have a roadmap of where you plan to be and what form your business structure may take in future.

Next time, we’ll look at the compliance section of your business plan, which begins the final sections of your document, bringing it all together.