The Best Australian Company Structure

By: NJK

In Australian businesses there are several company structures -

  • 1. Sole Trader
  • 2. Partnership
  • 3. Pty Ltd company
  • 4. Limited company
  • 5. Public company

Each of these structure have their purpose but if you are a baby boomer looking at retiring in the next 5 years and have a Pty Ltd company, Partnership or are a Sole Trader then I suggest that you look at the benefits of establishing a Public company. Don't just take your accountants point of view, do some research to find out how it will benefit your situation.

In my opinion the Limited Company Structure is one of the best kept business secrets in the country.

There have been many articles written about what will happen when the baby boomers start retiring in the next 5 years. As a qualified and experienced business broker I can tell you that unless your business is something special you had better start looking at an exit strategy that will create value for you and a potential purchaser.

It is estimated that there will be a glut of businesses on the market within the next 5 years or so and the traditional 2-5 times multiple will go out the window because it will be a buyers market. Now some of you may say that this is rubbish and dismiss the idea and this is nothing but a scare campaign. Can you really afford to risk what is probably a large part of your retirement or superannuation fund?

This article is not so much about Exit Strategies but more about converting to a public company. If you would like to realise the maximum value of your business in the short term, create funds for expansion, look for the ideal exit strategy, still remain in control and work less in the business then you should consider this strategy.

Don't get me wrong, it is not all a bed of roses, there is a journey to be undertaken, you will have to consider -

  • 1. Who should be a director, you will need at least two others (no family members unless they can add value)
  • 2. Who can help you with compliance 
  • 3. Do I want to invest $$$ and time in the process
  • 4. Do I want the hassle of all the extra paperwork and compliance issues
  • 5. Who can help me stay focused on achieving this course of action
  • 6. Who will run my business

I suggest that unless you have at least 10 employees you should probably not consider this course of action unless you have sufficient capital to start employing others whilst you focus on this structural change.

By structuring your company to be a Limited Company you will be raising funds by way of share issue and with that comes reporting requirements to a wide variety of entities. You will probably become Chairman of the board although you don't have to. You will need to appoint two other directors who will assist you add value to the business and to satisfy the shareholders.

This can be a great alternative to selling the business outright. You could in time, as Chairman work 'ON' the business for maybe two to three hours per week and still receive a handsome salary because of your intellectual property.

Mind you, this structure will require you to let go and appoint managers to perform duties you would normally undertake, the goal here is to remove the business's reliance on you.

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