Question

Explain the factors that should be considered when choosing a legal form.

Answer 1

1) The level of control you need to exercise

If it needs a complete level of control sole ownership is recommended

Other examples re partnerships that comparatively own lesser exercisable control.

2) Potential legal liability

The extent up to which the form should be protected from personal legal liability should be considered.

3) Cost and structure of the legal form

The legal structures each have differing set up procedures, cost and complexities involved. For example, while a sole trader is simple to set up and requires few reporting requirements, a more complex structure like a trust involves strict reporting requirements and must be set up by a solicitor or an accountant.

4) Flexibility and future needs

the expansion of a trust is subject to legal penalties so is not an appropriate structure to choose should expansion be a goal in mind for your business.

5) Tax assumptions

6) administration

Whilst a sole trader legal structure has few administrative requirements, the complex legal structures such as a company have strict and difficult record keeping and paperwork requirements.

7) Continuity of existence

It is important to consider how you see the business coming to a conclusion. If you wish for the business to be ended when you personally wish for it to end, then becoming a sole trader is the most appropriate option