Choosing Your Business Structure

When starting your business, it’s important to consider the right structure for it. Your choice of structure will depend on many factors, including the size and type of business, your personal circumstances and business goals. 

There are four main types of business structures in Australia:

  1. Sole trader
  2. Company
  3. Partnership
  4. Trust.

Each structure provides different:

  1. Tax liabilities
  2. Responsibilities as a business owner
  3. Personal liability
  4. Asset protection
  5. Ongoing costs and requirements.

We break down the key features of each business structure.

Sole Trader

A sole trader is an individual operating a business. It’s the simplest and cheapest business structure. As a sole trader, you are the only owner and you control and manage the business. As a sole trader you are personally responsible for all obligations such as debts and legal liability and your personal assets (your family house, cars, jewellery) are at risk.

Partnership

A partnership is a group or association of people who carry on a business as a partnership. A partnership is relatively cheap to set up and operate. The partners share income, losses and control of the business. A partnership agreement is important as it will set out how the partnership will operate. As partners you are responsible for all obligations and liabilities of the partnership and the personal assets of the partners are at risk.

Company

A company is a legal entity with a high set-up and reporting costs. A company is run by its directors and owned by its shareholders. 

A company has its own rights and responsibilities. Whilst personal liability of directors is limited, it does not absolve them from insolvent trading, tax liabilities and workplace health and safety breaches. There are high set up and reporting costs for companies. There are also reporting requirements and statutory obligations. 

A shareholders’ agreement should be in place when there are more than one shareholder.

Trust

A trust is a structure where a trustee carries out the business on behalf of the trust’s members (or beneficiaries). A trustee can be an individual or a company.  A trust can protect the assets of members from legal liability and profits from the trust go to beneficiaries.

A trust is not a separate legal entity and beneficiaries have no control over decision-making. Decisions are made by the trustee. Setting up a trust can be expensive as a formal deed is required outlining how the trust will operate and there are complex reporting requirements.

Here’s a quick comparison between each structure:

Business Structure comparison

So, which structure should you choose?

The answer: It depends…

It’s best to seek advice before making any decisions relating to business structures.

At Cohen Legal we can help you find the right structure for your business and prepare the relevant documentation to ensure that it suits your business needs and goals. 

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