There are many possible reasons why you may want or need to restructure your business. These can range from:
- investor requirements,
- asset protection,
- getting ready for a major liquidity event,
- maximising return to stakeholders in sale, merger or acquisition
- a change of ownership or ownership structure,
- response to a financial crisis or major change in the business
Business restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a business for the purpose of making it more profitable, or better organized for its present needs.
Here are some key questions to ask yourself before changing your business structure:
Why are you changing your business structure? – Having a good understanding of why you are restructuring is important to ensure the new structure meets your business needs.
What kind of structure are you changing to? – Consider the pros and cons of each structure, and decide on a business structure that best suits your business and situation.
Do you have a business plan for your new structure? – For example, you may have purchased an existing business or are expanding your current one. You need to ensure your business plan reflects the new or proposed structure, and outlines the goals and objectives of your business.
Have you looked over your stakeholder relationship agreement or corporate governance structure, or do you need to create one? – If you are adding stakeholders to your business, for example going from a sole trader to a partnership or company, it needs to be clear to everyone what the terms and conditions are, such as percentage of ownership, decision making, liability, responsibilities etc.
What other agreements do you need to have in place? – There may be other agreements you will need to look over in preparation for your business structure change. This is particularly important in the case of companies and trusts.
Are there any changes to your tax obligations? – Business restructuring may affect the tax you have to pay or how you report your tax. You may be eligible for Small business restructure rollover which allows small businesses to transfer active assets from one entity to one or more other entities without incurring an income tax liability. This type of rollover applies to the transfer of active assets that are CGT assets, trading stock, revenue assets or depreciating assets. It can be used if your aggregated turnover is less than $10 million.
Business restructuring needs to be carefully considered, before taking this step we advise you to talk to our Business and Commercial team to understand the implications in your specific case. Contact Aitken on 02 8987 0000.