A business structure is often the first thing to change when your business grows. By reorganising your structure, you can potentially become more profitable and improve processes.
You may be restructuring to meet financial goals and objectives. Your business may have expanded overseas. Or perhaps you’re expanding your product functions and need to change your structure to accommodate this growth.
Many businesses begin with a sole trader structure and shift to a company structure when the time is right. Here, we reveal the steps needed to move your business structure from sole trader to company quickly, efficiently and cost-effectively.
Decide on ownership and office holders
First, decide whether or not you need to bring in new shareholders. If you do, you’ll need to determine whether you will have more than one office holder. Once these decisions have been made, you’ll be in a position to incorporate your company.
Generally the most appropriate structure to use will be a Pty Ltd company. You can either instruct an accountant or lawyer to do this for you, or use an online company incorporation site like eCompanies. If your current business name as a sole trader isn’t already in use, that will ensure continuity in your branding.
Amend your business terms and conditions
Since you’re setting up a new business structure, you’ll have to amend your business terms and conditions. A lawyer can do this for a low fixed fee, as the changes should be relatively minor. However, it’s important that your terms clarify that the business entity is now a company.
Advise your clients and suppliers
It’s important to advise your clients and suppliers that you’ll now be trading as a company. Update them on your new bank account details, and provide them with your new business terms and conditions. If you’re operating under contractual arrangements, you must ensure the old contract is cancelled, and a new one, with your company as the counter-party, is signed. You should do this as quickly as possible in order to minimise the hassle for your accountant and your liabilities.
Make sure your insurance provider understands you’re now operating as a company so they can insure you appropriately.
If you have any employees (unlikely if you’re a sole trader, but not out of the question) you’ll need to transfer their employment to the new company. This means entering into new employment contracts with each worker with your company as the employer.
Transfer assets to the company
Many sole traders don’t actually have many assets, so they don’t need to worry about this issue. However, if you need to transfer assets then it’s important to discuss the transaction with your accountant or a tax lawyer. The tax treatment of the transfer is crucial – you will obviously want to minimise it as much as possible!
Changing your business structure can be quite complex, which is why it’s a good idea to set yourself up with a company structure from the get-go. If you do need to change your structure, it’s important to get good legal advice in order to avoid legal or tax issues.
Looking to expand your business but lack the necessary funding? Contact Prospa on 1300 882 867 or apply online for a small business loan.
By Jill McKnight
Jill is a Principal Lawyer at LegalVision with a strong background in banking and finance law. She has over 15 years’ experience in banking and finance transactions, with a particular focus on asset finance, leasing, business structuring, startup and online law for small businesses.