Business Structures

One of the key decisions you'll make when starting a business is which legal structure to use. Because it's such an important decision, you should get advice from a qualified independent business, financial or legal advisor.

The structure you choose will depend on the size and type of business, along with your personal circumstances and how much you want to grow the business.

Keep in mind that if you need to, you can change your business structure later on if you find that a new structure will meet your needs better.

Legal Structure

Comparison of sole trader, partnership, company and trust:

Business Structures
Is the structure difficult to set up?
No
No
Yes
Yes
Is it expensive to register?
No
No
Yes
Yes
Do I retain complete control?
Yes
No
No
No
Are there complex reporting requirements?
No
No
Yes
Yes
Will my assets (house etc...) be under threat if my business goes into debt?
Yes
Yes
Not as likely
Not as likely
Do I receive full profits made from the business?
Yes
No
No
No
Can I employ staff?
Yes
Yes
Yes
Yes
Do I have to pay myself superannuation, workers comp etc...?
No
No
Yes
(if employed by the company)
Yes
(if employed by the company)
Can I change the legal structure easily?
Yes
No
No
No
Do I have the ability to plan tax through avenues like income splitting?
No
Yes
Yes
Yes
Is it easy to raise capital?
No
Yes
Yes
Yes
Is it easy to dissolve or exit?
Yes
Yes
Yes
No

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Choose a structure before you start your business

The key is to ensure that whatever structure you choose is in place before you start the business and that you're able to comply with the various legal requirements it carries.

There are six structures that you can choose from. However, the first four are the most widely used in Australia:

Sole trader

A sole trader is the simplest form of business structure and relatively easy and inexpensive to start and maintain. Read more...

Partnership

A partnership involves two or more people (but no more than 20) going into business together. Read more...

Company

A company is a separate legal entity capable of holding assets in its own name. Shareholders own the company while directors run it. Read more...

Trust

Unlike a company, a trust is not a legal entity. They are often used in connection with running a business for the benefit of others. Read more...

Cooperative

A cooperative is a member-owned business organisation with at least five shareholders, all of whom have equal voting rights regardless of their level of involvement or investment, although every shareholder is expected to help run the cooperative. Read more...

Association

An incorporated association offers a relatively simple alternative to forming a company for small non-profit groups such as charities and hobbyists along with sporting, cultural and recreational organisations. Read more...

 

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Factors to consider

Each structure has advantages, disadvantages and responsibilities, which need to be considered before making a decision. Your accountant or business advisor can help you make the right decision, but some of the factors to consider include:

  • taxation requirements and liabilities;
  • legal liability;
  • costs;
  • capital; and
  • management requirements.

Your structure should accommodate the potential for changing circumstances with minimal disruption; provide adequate asset protection; opportunities for legitimate tax reduction and efficient distribution of profits.

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What's next...

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Related Information

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