Getting the structure of your business right from the outset is extremely important as it will form the foundation for how you run your business.
Business structures come in various forms, all of which come with their own set of advantages and disadvantages.
If you’re looking to protect your business and its valuable assets, then setting up your business under a Dual Company Structure can provide an additional layer of protection.
What Do I Need To Know About A Dual Company Structure?
A dual-company structure involves two companies: the holding company and the operating company (also known as the trading company).
In this configuration, each company does exactly what their titles suggest. An operating company does things, a holding company holds things.
In this structure, the holding company wholly owns the operating company. The holding company owns the company’s major assets and capital — such as intellectual property, real estate, cash and any liabilities. The holding company does not oversee the day-to-day workings of the business.
The operating company will carry out the traditional operations and day-to-day work of the business, like entering into contracts with third parties, hiring employees, providing goods and services, and dealing with customers.
How Can A Dual Company Structure Help My Business?
The key benefit of a dual company structure is that it limits the liability of your business and protects its major assets and capital.
If a customer or employee were to sue your business, they would have to sue the company that they have the legal relationship with, which is the operating company in a dual-company structure. This keeps the business’ assets owned by the holding company out of the equation.
For this reason, the operating company is exposed to most of the risk of the business, as it will get sued if anything goes wrong under the company’s various contracts. This is particularly attractive to companies that own valuable intellectual property, as the assets are effectively quarantined from the liability of the operating company.
Plus, in the unfortunate event of an operating company’s insolvency, the assets of the holding company would be protected from creditors and other liabilities.
Dual company structures also form a great foundation for the growth and development of the business, as the lower risk and protection of assets allow you to enter and exit new ventures, and diversify more easily.
It should be noted that there are still circumstances where the holding company can be held responsible for the operating company’s misconduct, such as fraud.
Additionally, the main drawbacks of a dual-company structure come with the fact of having two companies. This means there are more complexities, more administrative work to be fulfilled and more paperwork to file.
How Does A Dual Company Structure Compare To Other Business Structures?
Dual company structures are unique compared to traditional business structures in many ways.
A sole trader structure is substantially different from a dual company structure as there is no separate legal entity from the owner. The sole trader operates the business under their own name and ABN. This can be cheap, easy to start, and with little administrative work. However, with no distinction between personal and business assets, you are personally liable for all your business’ activities.
Partnerships share the same advantages and disadvantages as sole traders do when compared to a dual-company structure. However, having partners allows for a greater breadth of knowledge. But, conversely, this means partners are responsible for the shortfalls of other partners.
Traditional company structures are very similar to dual company structures, but they present one less step. Under a traditional company, your personal assets would be separate and protected. However, unlike in a dual company structure, company assets will be at risk if issues arise. Having one less company to worry about also equates to less complexities, paperwork and admin work.
For more information on alternative business structures and the importance of getting your business structure right from the start, check out this helpful guide.
Forming a dual company structure will provide your business with an added layer of protection, while forming a strong foundation for your business’ future.
At Sprintlaw, our team of experienced lawyers can assist you in properly registering and setting up a dual-company structure. Get in touch to learn more!
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