Choosing your business structure

One of the key decisions you’ll make when starting a business is its structure. Your choice of structure will depend on the size and type of business, your personal circumstances and how much you plan to grow the business.

You can change your business structure as your business grows or your circumstances change.

TIP: It is a good idea to discuss your proposed structure with your financial, legal or business adviser before starting your business.

Your business structure can determine your:

  • tax liabilities
  • responsibilities as a business owner
  • potential personal liability
  • asset protection
  • ongoing costs and the volume of required paperwork.

There are several business structures, the first four are the most widely used in Australia:

  • Sole trader - an individual trading on their own.
  • Partnership - a number of people or entities running a business together, but not as a company.
  • Company - a legal entity separate from its owners.
  • Trust - an entity that holds property or income for the benefit of others.
  • Co-operative - member-owned business organisation with at least five members.
  • Incorporated association - an entity usually established for recreational, cultural or charitable purposes.

The four main business structures commonly used by small businesses in Australia are compared below.

Business Structures
Sole trader
Partnership
Company
Trust

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

More information