How to start a consulting brand? Well, if you’re planning to set up one, you should select the best legal structure for consulting business. it’s a must, as the legal structure of a business plays a huge part in the operation. A business’s legal structure decides your management, fundraising abilities, tax rates, document requirements and more. It can also put up a barrier between your business and personal taxes.
Continue reading the following blog to know more.
What are the legal structures available for consulting businesses?
To take the first step as a consultant, you must first select the right legal structure for your brand. Here’re 3 types of legal structures you can choose from for your consultancy business,
1. Sole Trader Consultant:
It’s the 1st type of legal structure for consultancy brands. And here’re the facts,
i) It’d be a logical business structure if your business consists of only yourself.
ii) Compared to the other 2 legal structures, it’s cheaper and easier to set up.
iii) You don’t need to create a separate bank account for your business to obtain an Australian Business Number (ABN).
iv) Any business revenue you’re making will be noted as your personal income and you’ll be taxed based on that.
v) But unlike 2 other legal structures, this structure won’t provide you much opportunity and flexibility for growing your brand.
vi) Hence, you’ll be liable for any debts of your business. And if you take a loan for your business, you’ve to secure personal assets.
2. Consultancy Company:
It’s the 2nd type of legal structure for a consultancy business. Here’re the facts,
i) This legal structure is ideal if you’re building a company for your consultancy business.
ii) It’s a must to set up a company with the flexibility and opportunities it offers.
iii) Using this legal structure doesn’t hold you liable if your brand is in debt. Rather it’ll hold the company liable for it.
iv) You don’t have to clear the debts in your business with your personal assets, as you’ll have a wide range of capital assets.
v) This legal structure can protect your personal assets and shareholders to a certain limit.
vi) Though it’s costlier to set up compared to the 1st option, it involves much lower risks.
3. Consultancy Partnership:
It’s the 3rd type of legal structure for a consultancy business. Here’re the facts,
i) It’d be a suitable structure for your business if it consists of you and another individual.
ii) It makes you liable for any actions taken by your partner and simultaneously for them.
iii) Having this legal structure gives you more capital (by adding both of yours) to set up the brand.
iv) It can also increase your borrowing capacity.
v) And for taxes, each partner will only have to pay tax for their shares on the net income.
vi) Unlike the previous legal structure, this structure won’t protect your personal assets if the brand is in debt.
vii) This risk will be the same, even if it was your business partner who put the brand in debt.
Do you have to change your business legal structure at any time?
As a consultant, you can change the legal structure of your business anytime you want. But sometimes, it becomes a must to change the legal structure of your consultancy business.
And here’re the top 6 times you should do that,
i) Downsizing or upsizing your consultancy business,
ii) Buying an existing business to merge with your brand,
iii) Expanding the market for your consultancy business,
iv) Taking on your business partner or
v) Looking for reorganising your cash flow.
Final thought,
Are you planning to set up a consultancy business soon? Ensure to select the best legal structure for consulting business before doing anything. And consulting with a skilled lawyer can help you with that.
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