Whether you are entering into an existing child care business, intending to set up a new structure or restructuring an existing business there are a range of legal structures which may apply in your circumstances. Different legal risks and liabilities associated with each business structure may apply:
Sole Trader
- Appropriate for sole owners who intend to control and manage the business on their own
- Simple and may be relatively cost efficient
- A sole owner can retain all profits but has unlimited legal liability for all debts and liabilities of the business
- Personal assets may be used to pay off debts of the business
- Sole traders should consider and assess asset protection strategies
Partnership
- Appropriate if there are two or more partners who wish to jointly hold ownership of the business
- A written partnership agreement should address how profits are to be distributed, the share or proportion of ownership of each partner, dispute resolution and transfer of ownership if one partner exits
- Upon the exit of a partner, the partnership structure may need to change or even be dissolved depending on the terms of the partnership agreement
- Each partner is personally liable for their own acts and may be personally liable for the acts of other partners
Proprietary Company
- Appropriate for setting up a business with a separate legal entity responsible for liabilities of the business that is separate to its owners or shareholders
- Must comply with the Corporations Act including governance and reporting requirements which may lead to higher compliance costs
- A company must have at least one director and one shareholder (who can be the director) and up to 50 shareholders
- Liability of owners/shareholders is limited to share capital subscribed
- A company structure can provide asset protection not otherwise available under a partnership
- The company structure continues if a director/shareholder leaves or joins the business
- Profits can be distributed by way of dividends to owners/shareholders
- A company structure may be more attractive to prospective purchasers
Trust
- Appropriate where a person or a company wishes to carry on the business and hold assets acting as trustee for the benefit of the beneficiaries
- A trust can be structured as a service entity to employ administrative staff, purchase equipment and lease premises
- All income is accumulated in the trust and the trustee has the power and discretion to distribute the income to the beneficiaries
- Ownership of the business by a trustee may provide an asset protection strategy
- A trust structure may be complex and the establishment and ongoing management of a trust may be expensive
Checklist of factors to consider for each structure:
- Set up costs and ongoing regulatory costs
- Retirement and exit strategies
- Corporate structure and associated risks
- Regulatory and reporting and liabilities requirements
- Management control, participation and ownership
- Asset protection
We can help
Our corporate advisory and commercial team can advise you on a business structure for your child care business and prepare necessary documentation including:
- Business Sale and Purchase agreements
- Employment contracts
- Partnership and Shareholder agreements
- Funding and loan agreements
- Protection of business data and intellectual property ownership
- Company Constitution
- Board governance issues
- Compliance and regulatory considerations such as employment, data security and privacy
- Dividend and distribution policies
If you would like more information about business structure, please contact Principal Georgina Odell.