Choosing Your Business Structure
Sole trader, partnership, company or trust — pros, cons and tax impact.
Notes from Randall Harper. Thirty years working alongside owner-operators, executives and boards — companies of all types and sizes — across entertainment & media, hospitality, service based business, lifestyle businesses, financial services, retail and not-for-profit, in Australia, Asia, the United Kingdom and the United States. What follows is the thinking I keep returning to.
Structure is consequential, but not forever
Owners often spend either too much or too little time on business structure. Both extremes are mistakes. The structure you choose at the start has real implications for tax, liability, and how you can grow — but it is also not permanent. Most businesses change structure at least once in their lifetime, often around the point of significant growth or a first hire. Choose deliberately, knowing it can be revisited.
The four common structures
- Sole trader — simplest, cheapest, no separation between you and the business. All profit is your taxable income; all liability is yours personally.
- Partnership — two or more people sharing ownership. Simple to start, but each partner is liable for the others' decisions.
- Company (Pty Ltd) — a separate legal entity. More paperwork and cost, but limited liability and a flat company tax rate.
- Trust (usually discretionary) — a structure that holds assets or operates a business on behalf of beneficiaries. Powerful for tax planning and asset protection, but more complex and expensive.
What actually drives the choice
The factors that matter most are personal liability exposure, expected profit level, plans for hiring or partnership, and whether you intend to eventually sell. A sole trader earning modest income with no employees is usually fine as is. The moment liability exposure rises (employees, large contracts, physical risk) or income meaningfully exceeds personal tax brackets, a company or trust starts to make sense.
Get the advice early
An hour with a competent accountant before you make the structural decision usually pays for itself many times over. The right answer for your situation is rarely obvious from a search engine, because it depends on a combination of personal circumstances — other income, family situation, asset protection needs — that only emerge in conversation. Generic advice almost always under-serves the specific question.
Restructure when the moment is right
Changing structure mid-business has tax and timing implications. The best moments to restructure are usually at a natural break point — the start of a financial year, before a significant hire, ahead of a known growth phase. Done with proper planning, the cost is manageable. Done reactively, after the need is already pressing, the cost is meaningfully higher.
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The contents of this paper are the opinion of Clear Point Advisory only. Readers should rely on their own judgement and obtain professional advice appropriate to their circumstances.