Factors in Deciding on a Business Structure
Guided by their unique venture's needs and ambitions, several key factors steer Alex and Jordan's decision on an entity:
Liability Protection
With construction renowned as a high-risk industry rife with lawsuits and insurance claims, Alex and Jordan make liability protection a priority. As seasoned industry veterans they've witnessed the financial wreckage claims can produce. Limiting personal assets exposure is thus crucial.
Tax Implications
The tax treatments attached to different entities hold major cost ramifications. Alex consults their accountant on expected income and ideal tax conditions for them. Some structures like trusts allow pass-through taxation, allowing greater flexibility for individual circumstances. But this status brings eligibility restrictions. Getting the tax structuring right from the start means less leakage down the track.
Shared Management and Control
While wanting to maintain control over strategy and operations, Alex and Jordan recognize each other's complementary capabilities. They seek an entity facilitating power-sharing and joint decision-making for key issues. However, they wish to avoid gridlocked 50/50 stances diluting decisive leadership.
Administrative Burdens
Alex and Jordan factor in the legal, accounting and compliance obligations demanded by prospective structures. More formalized entities like corporations and trusts require fulfilling managerial formalities, record-keeping requirements, reporting duties and other regulatory red tape. They strive to avoid cumbersome bureaucracy hampering their agility.
Funding Options
They envision needing investment to scale. Entity structures enabling equity financing from angel investors or venture capital partners down the track provide future-proofing. But certain limitations on ownership transferability pose concerns. Alex also worries about losing decision-making control in growth-focused funding deals.
Flexibility to Shift Strategies
In such a rapidly evolving sector, Alex and Jordan expect their business models to pivot frequently chasing digital construction trends. An adaptable structure allows smoothly transitioning between commercial or social focus areas as their niche ideas take shape. Overly rigid entities get crossed off their list.
Steps in Forming the Chosen Entity
Upon settling on a proprietary limited company structure, best aligning with their aspirations, Alex and Jordan the necessary administrative steps to establish the new entity:
- Name and register the business with ASIC as a legal entity
- Draft an Operating Agreement codifying financial and managerial arrangements
- Open dedicated business bank accounts and apply for tax registrations
- Engage lawyers to advise on commercial contracts and IP protections
- Investigate necessary construction industry licenses, permits and insurances
- With the right planning, they can now leap into their venture poised for sustainable, ethical and financially prosperous success.
Managing Future Evolution
Rather than a permanent one-time decision, selecting an entity structure marks just the starting line.
As strategic priorities and situations evolve in tandem with business maturity, reassessing initial choices against new realities allows for managing continuing viability and growth. Alex and Jordan may one day face shifts prompting structural changes, like tapped-out funding sources or partners seeking to exit.
Committing to periodic reviews of their legal and commercial scaffolding ensures not outgrowing a once-fitting foundational garb. Just as the construction industry relies on adapting to changing community demands, the legal structure supporting operations must stay strategically aligned.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
