Business structures

Introduction
Deciding on a business structure

Introduction

If you are running a business of any sort - and a farm is, of course, a business - you will need a structure that provides the best possible legal and financial operating environment.

This section discusses the wide choice of business structures available and their various characteristics. It explains the many considerations that people make in choosing a business structure that best suits their needs and priorities.

For example, some farmers may be attracted by the simplicity of a sole proprietorship or partnership. But if you run a large business and are concerned about your liability for business debts, you may well prefer a company structure. If tax minimisation is your primary objective, you may decide on a trust. If you want to join forces with other similar business-people, perhaps a cooperative will suit your needs. In some cases you may decide on a combination of two or more structures.

Some of the common, legally recognised business structures discussed in this section are:

sole proprietorships/sole trader;
partnerships;
companies;
cooperatives;
Franchises
trusts; and
joint ventures.

Incorporated and Unincoprorated Business Structures

The legal forms of business structures fall into two categories: unincorporated forms and incorporated forms. For example, sole proprietorship, partnership, joint venture, trust and franchises are unincorporated business structures, whereas company and cooperatives are incorporated business structures.

The basic difference between these forms of business structures is the legal liability of its operator/owner. For unincorporated business structures, the liability is unlimited. It means that the owner of the business may be personally liable for all the debts of the business and the creditor can personally sue the owner of the business. For incorporated business structures (i.e. cooperatives, company) the legal liability is limited. It means that in case of bankruptcy or debts of the business, the shareholders/operators will not be personally liable. The extent of their liability is limited to their shares in the company.

There are advantages and disadvantages of each business structure. Before you embark upon selecting a particular form of business structure, you may need to speak to your financial adviser or accountant as to which business structure may suit your personal needs and gives you maximum financial benefits and legal protection.