in Business Law

How to choose a business structure

One of the key decisions you will 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.

Reasons for choosing your business structure wisely

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.

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

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.

Business structures comparison chart

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