Is your company structure still right for the size you've become?

Most company structures are chosen in an afternoon. A founder, an accountant and a quick decision made for a business with no revenue, no staff and no investors.

That is fine at the start. The problem is that the structure stays put while the business keeps moving. Three or five years in, you have a team, real contracts, maybe outside money, and you are still running it all through a setup designed for a side project.

No single sign means you must restructure. Two or three together usually means it is time to look. Here is how to tell whether your company structure still fits, and what changing it actually involves.

Signs your company structure needs revisiting

• You are still trading personally. If you operate as a sole trader or partnership and now sign leases, hire staff or take on large contracts, your personal assets are carrying the business risk. (Our guide to choosing between a sole trader, partnership or company covers how the three compare.)

• Everything sits in one entity. Your IP, cash, staff and customer contracts all live in the same company. One claim against the trading business puts all of it within reach.

• Investors are asking questions. Most VCs and angels invest into a company, not a trust. They will also look hard at your constitution, shareholders deed and share register before they sign.

• Your cap table is messy. Handshake equity, a departed co-founder still holding a large stake, or shares issued without board resolutions or ASIC filings. These surface in due diligence at the worst possible time.

• You want to give staff equity. An employee share scheme is far simpler through a company than a trust, and the tax concessions assume a company. We cover the set-up in what founders need to know about employee share schemes.

• You are going overseas. Expanding into the US or UK, or raising from foreign investors, often means a new entity or a change to who owns what.

• You are nearing a legal threshold. A proprietary company can have no more than 50 non-employee shareholders. Hit two of $50m consolidated revenue, $25m gross assets or 100 employees and you become a large proprietary company, with audited accounts lodged at ASIC.

• The founders' lives have changed. Someone wants out, someone is planning an exit, or estate planning now matters. A small company structure that worked for two mates may not work for two families.

What the fix usually looks like

In Australia, the corporation legal structure most growing businesses land on is a proprietary limited company, often sitting under or alongside other entities. The right shape depends on the problem you are solving.

• Personal liability as a sole trader or partnership: Move the business into a new Pty Ltd company

• Assets exposed to trading risk: Insert a holding company above the trading company, or move IP into a separate entity that licenses it back

• Investors will not invest into a trust: Restructure so a company owns the business, with the trust as a shareholder if needed

• Messy cap table or outdated documents: Clean up rather than restructure: buy back or transfer shares, fix the register, adopt a new constitution and shareholders deed

• More than 50 non-employee shareholders: Convert to a public company, or rethink how shares are held

• Overseas expansion or foreign capital: Set up a local subsidiary, or in some cases flip the parent company offshore

One caution. Not every problem needs a restructure. We often find a business needs better documents, not new entities, and that is a much smaller job.

What changing your structure actually involves

A restructure is a project, not a form. Done well, it usually takes 4 to 12 weeks. Here is how it runs.

1. Map what you have. List every entity, who owns it, and what it holds: contracts, IP, staff, bank accounts, licences, leases and grants. Most founders are surprised by what is held where.

2. Get tax advice first. Moving assets or shares between entities can trigger capital gains tax, stamp duty and GST. Rollover relief and stamp duty concessions are often available, but only if the steps are set up to qualify. Your lawyer and accountant need to design this together, not one after the other.

3. Paper the transfer. Depending on the shape, that means share swap or asset transfer agreements, IP assignments, new constitutions, a shareholders deed, board and shareholder resolutions, and ASIC filings.

4. Move the contracts. Customer, supplier and lease agreements name a specific entity. Many cannot be assigned without the other party's consent, and some have change of control clauses. Each one needs to be novated or assigned properly.

5. Move the people. Employees moving to a new employer need new agreements, with prior service and leave entitlements recognised.

6. Tell everyone who needs to know. Banks, insurers, landlords, key customers, the ATO and any grant or R&D tax incentive bodies.

Where restructures most often go wrong

Step 4 is where restructures most often go wrong. A pattern we see regularly: the business moves into a new company, but its biggest customer contract still names the old one. Nobody notices until there is an invoice dispute or a buyer's due diligence asks which entity actually holds the revenue.

When to do it

Timing matters too. Restructure before a raise or sale, not during one. Investors will price in any loose ends, and fixing them under a term sheet deadline costs more and gives you less leverage. We go further into this in why timing decides whether a restructure works.

Common questions

When does a proprietary company become a large proprietary company?

When it meets at least two of three tests: $50m in consolidated revenue, $25m in gross assets, or 100 employees. Once it crosses that line, the company has to have its accounts audited and lodge them with ASIC.

How many shareholders can a Pty Ltd company have?

A proprietary company is capped at 50 shareholders who are not employees. Employee shareholders sit outside that count. A business heading past the cap either converts to a public company or changes how its shares are held.

How long does a company restructure take?

Usually somewhere between 4 and 12 weeks if it is run properly. Most of that time goes into tax design, documenting the transfers and moving contracts and staff across. It is best done before a capital raise or sale starts, not in the middle of one.

Can investors put money into a business run through a trust?

Most VCs and angels will only invest into a company. The usual answer is to restructure so that a company owns the business, and the trust can then hold shares in that company if the founders want to keep it.

What corporation legal structure suits a growing Australian business?

For most, a proprietary limited company, often alongside other entities. A common shape is a holding company sitting above the trading company, with IP sometimes held in a separate entity and licensed back. The right version depends on the problem the structure needs to solve.

Where to start

Your company structure should match the business you run today and the one you are building next, not the one you started with.

If two or more of the signs above apply, start with a structure review. We map what you have, flag what is misaligned, and tell you plainly whether it is worth changing now, later or not at all. Then we work with your accountant to get it done properly.

Book a fifteen minute call with the Zed Law team and we'll tell you whether a review is worth doing yet.