Choosing the Right Business Structure: Partnership vs Company

This presentation provides an overview of the two most common business structures - partnership and company. It discusses the advantages and disadvantages of each structure and provides recommendations based on the client's requirements. The presentation also covers the nature of the client's business and the number of owners involved.

Business Structures
(Advice to Client)

 Partnership
◦ Agency relationship
◦ Business in common with profit
◦ Not a separate legal entity
◦ Three types based on differing liability
 Company
◦ Separate legal entity
◦ Limited liability
◦ Perpetual Succession
Business Structures

 Advantages
◦ Easy to form
◦ Low compliance costs
◦ Better access to resources
 Disadvantages
◦ Personal liability of partners
◦ Higher tax rates since partnership only a
passthrough mechanism
◦ Issues with changes in ownership and raising
finance
Partnership Business
Structure

 Advantages
◦ Limited liability to owners
◦ Share transfer possible without dissolving the
company
◦ Lower tax owing to corporate tax rate
 Disadvantages
◦ High compliance cost
◦ Legal hassles during incorporation
Company Business
Structure

 Minimum four owners
◦ Sole trader not possible and hence only company
or partnership the relevant choices
 Nature of Business
◦ Not capital intensive and hence raising finance is
not a key priority
◦ Low to medium risk in terms of business liability
◦ Four partners and hence profit share of each likely
to be less especially in the beginning years
Client Requirements

 Partnership the preferred choice
 Reasons
◦ Limited need of capital and hence equity transfer
not foreseeable
◦ Personal liability not a big concern
◦ Most likely the marginal personal income tax rate
for the partners would not cross 30% i.e. the
corporate tax rate
Recommendation