Our Service

Key Considerations When Choosing Business Structures

The type of business structure you choose depends on your business needs. If you are yet to decide, you can conceptualize the business entity that you would like to set up with these helpful key considerations.

WORKING ORGANISATION

Work organisation refers to how work is planned, organised, and managed within companies and to choices on a range of aspects such as work processes, job design, responsibilities, task allocation, work schedule, work pace, rules and procedures, and decision-making processes. You need to consider the following:

• How is the control divided?
• Who will the voting structure be?
• How much freedom of action is to be given to the board in some smaller companies?
• How will the shares be transferred (in private companies)?

TYPE OF BUSINESS ACTIVITIES

This is the core of every business entity. The activities performed by entities vary based on factors like industry and size of the entity, and type of entity structure followed. The three main types of business activities are operating, financing, and investing activities.

• Which is the most appropriate business type that will suit the business needs?
• Is there any special licensing or business permit application required?

CAPITAL STRUCTURE

Capital Structure is the composition of a company’s sources of funds, which is a mix of owner’s capital (equity) and loan (debt) from outsiders and is used to finance its overall operations and investment activities. The most common type of capital structure is equity share capital wherein the owner’s contribution is reflected. It is the first amount introduced by the owners into the entity’s business.

• How many investors and how much is the investment?

• How is this to be provided (i.e. equity share capital, loan capital, preference share capital or vendor finance)?

LIABILITIES AND RESPONSIBILITIES

The type of business determines how much freedom or control a business owner or investor has in an entity and the amount of statutory compliance and requirements of an entity. As these statutory compliance and requirements mean costs, you need to properly consider the business structure you want to set up.

• Do you prefer to have limited or unlimited liability
• Who is liable to repay the debts obligations attributed to the company?

TAX CONSIDERATION

It is important to know the tax considerations in starting a business to avoid the financial burden due to tax effects. When you start a business, decide what type of entity the business will be because it determines how you will need to prepare your taxes. As the incidence of the revenue law often play an important part in the formation of a company the application of the tax legislation will inevitably be considered at this stage.

WHERE TO INCORPORATE

Choosing the right jurisdiction plays a vital role when forming a company. This will have a significant influence from the date of registration until the closure of the business. The jurisdiction that you choose will define which laws and international agreements your company must comply with.

EASE OF CLOSURE

The ease and costs of closure of an entity vary according to its business structure. Sole proprietorship, Partnership and Limited Partnership cease its business by its owner or partners. Limited Liability Partnership and Companies can cease their business by striking off or Winding Up which is a lot more costly and takes a lot of time.