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Getting Business Structure Right

Business ownership is an exciting journey, and it is always wonderful to see people taking the leap for the first time into owning their own business, whether starting from scratch, going into a franchise, or purchasing an established business.


It is essential to ensure that any new business venture is structured properly from the start.

One of the first discussions we have with our clients is how to set up the business, what is their structure going to be? Sole trader, partnership, joint venture, company and so on? The right structure can minimise tax and protect assets.
 
Part of deciding on a structure involves working with a client, and their accountant, to assess what they own, their family situation, what their plans are for the future, and working out with them what would be the best option for them and that business. Not all businesses or business owners are the same, and they each have different needs and factors which need to be considered.
 
The second step of getting the structure right is documenting it. If the business is owned by more than one person, it is vital that the business relationship be accompanied by the appropriate documents outlining how the business will be run and what will happen if something changes or things go wrong. Just because business partnerships start between family or friends, it doesn’t mean things can’t turn sour and ugly very quickly. Disputes can happen in any business relationship, and while the documents will not stop a dispute from arising, they will help in resolving disputes with less financial and emotional expense. 

If structuring is not done the right way at the beginning, it can be expensive to change the structure in the future, for example if a business owner wants to change from being sole trader to a company. If they have bought into a franchise, any change in structure effectively will be an assignment of the franchise and as such will require the franchisor’s consent and payment of the costs that go along with it. The same problem may arise with a lease of a shop, as a change in structure will be deemed to be an assignment of the lease. In each of these situations, the business owner is responsible for paying the franchisor and the landlord their costs for the changes. 

People often want to avoid spending money at the beginning in setting up their structure because they are ‘already outlaying so much money’, or ‘it’s just a small business’. But, spending the money at the beginning can save you money, time and anxiety in the future.


Get in contact with LINK, the authority on selling businesses, to see how our brokers can help you buy, sell or value a business.


This article was written by Watkins Tapsell Solicitors and Barristers.