Business Structure
Selecting the right business structure is a crucial decision when starting or expanding a business in Australia. The structure you choose will influence key factors such as taxation, asset protection, personal liability, and operational flexibility. It will also affect your setup costs, and ongoing administrative obligations.
In Australia, the most common business structures include:
- Sole Trader — The simplest and most cost-effective structure, providing full control and responsibility to the business owner.
- Partnership — Involves two or more people or entities running a business together and sharing income, losses, and control.
- Company — A separate legal entity that offers limited liability protection to owners (shareholders), but with more complex reporting and regulatory requirements.
- Trust — A legal structure where a trustee holds assets and operates the business on behalf of beneficiaries.
Your business structure will impact:
- How much tax you pay
- Whether you’re considered an employee or the business owner
- Your personal liability for business debts and obligations
- The degree of control you have over the business
- Ongoing compliance, reporting, and administrative costs
Sole Trader
A sole trader is the most straightforward business structure in Australia, with minimal setup costs and lower compliance requirements. You operate the business under your own name or a registered business name. However, there is no legal distinction between you and the business — meaning you are personally liable for all debts and obligations. Sole traders are taxed as individuals and are responsible for managing all aspects of the business. If you choose to trade under a business name other than your own, registration with the Australian Securities and Investments Commission (ASIC) is required.
Partnership
A partnership is formed when two or more individuals or entities run a business together and share income, losses, and management responsibilities. Partnerships are not separate legal entities, so each partner is jointly and severally liable for the business’s debts and obligations. Although a formal partnership agreement is not legally required, it is strongly recommended to avoid disputes. Partnerships must also register a business name with ASIC if trading under a name other than the names of the partners.
Trust
A trust is a legal arrangement where a trustee — either an individual or a company — manages business assets on behalf of beneficiaries. Trusts are often used for asset protection and tax planning but are complex and involve higher setup and ongoing administrative costs. Establishing a trust requires a formal trust deed and ongoing compliance with trust law and taxation obligations. If the trust operates under a name other than the trustee’s, registration with ASIC is mandatory.
Company
A company is a separate legal entity registered with ASIC. It has its own legal rights and responsibilities, including the ability to incur debt, enter into contracts, and sue or be sued. The corporate structure provides limited liability protection to shareholders but comes with higher setup costs, more complex reporting, and ongoing compliance obligations under the Corporations Act 2001 (Cth). Directors have specific legal duties, and companies are subject to company tax rates. Official guidance on establishing a company is available via the ASIC and Australian Business Register (ABR) websites.
Key Differences Between Business Structures in Australia
| Sole trader | Partnership | Company | Trust | |
| Cost | Low | Medium | High | Medium |
| Complexity of setting up | Simple | Moderate | Complex | Complex |
| Tax obligations | Low | Low | High | High |
| Legal obligations | Low | Low to medium | High | Medium |
| Owner | You | You and your partners | Company shareholders | Trustee |
| Responsibility for business decisions | You | You and your partners share | The director(s) | Trustee |
| Responsibility for debts or losses | You | You and your partners share | Generally, the company | Trustee |
| Separate bank account needed | No | Yes | Yes | Yes |
| Extra administration and reporting | No | Yes | Yes | Yes |
Summary
There are several business structure options available, each with its own advantages and disadvantages. Choosing the right structure requires careful consideration of key factors, including your growth plans, liability and asset protection needs, the potential requirement to offer equity to employees or external parties, and your long-term goals, whether that involves selling the business or passing it on to future generations. To ensure you select the most suitable structure for your unique circumstances — or to explore restructuring options for your existing business — please don’t hesitate to get in touch.
Luke Spies
Director
Agyle Co Pty Ltd
This content is intended for informational purposes, you should not construe any such information or other material as legal, tax, investment, financial or other advice.
