Business structures

As a new business operator, you chose a business structure to suit your business, lifestyle, and objectives. But you’re not locked into one business structure for life. As your business changes, you may decide to move to a different type of business structure.

The business structure you choose will determine:
  • the licenses you need
  • how much tax you pay
  • whether you're considered an employee, or the owner of the business
  • your potential personal liability
  • how much control you have over the business
  • ongoing costs and the volume of paperwork for your business.

Learn more about the most common types of business structures in Australia below, including some advantages and disadvantages of each.


 
  • Sole Trader - An individual trading on their own

    As a sole trader, you operate your own business as an individual, although you can employ people to help you.
     
    This is the simplest business structure, and it is relatively low cost to set up and operate. As a sole trader, you generally make all the decisions about running your business, and you’re legally responsible for all aspects of the business. This includes any debts and losses, which can't be shared with others.
     
    Some sole traders work from home offices, shared premises or co-working spaces where there are opportunities for brainstorming and informal partnerships.
     
    ADVANTAGES DISADVANTAGES
    Simple to set up and operate You are personally responsible for the debts and other liabilities of the business
    You’re in control of your business decisions You pay personal income tax on the business income
    Simpler reporting, tax and financial obligations  
    Easy to change or exit  
  • Partnership – more than one person or entity running a business together, but not as a company

    A partnership is a business structure that involves more than one person who carry on a business together.

    There are two types of partnership.

    In a general partnership, all partners participate in the day-to-day management of the business.

    In a limited partnership, there is at least one ‘general partner’ who controls the day-to-day operations and is liable for business debts. The other partners are ‘limited partners’ who have contributed capital to the business but aren’t liable for its debts or obligations.
     
    Before entering or creating a partnership, you should consult a lawyer and prepare a partnership agreement, or review any existing partnership agreements.
     
    The agreement should make clear:
    • each partner’s role
    • each partner’s financial contribution
    • how you’ll resolve disputes
    • how you may resign from or end the partnership.

    It’s important to remember that in a partnership, you and your partners are each liable for all the business debts and obligations if the business fails and a partner can’t afford to pay their share. This is called ‘joint and several liability’.
     
    ADVANTAGES DISADVANTAGES
    Easy to set up and exit Shared personal liability for debts
    Minimal reporting requirements Disagreements possible
    Shared control with other partner Ownership changes may require new partnership agreement
  • Company - A legal entity separate from its owners

    A company is a separate legal entity. This means the company has the same rights as a person and can sign documents, incur debt, acquire and sell property, and sue others and be sued.
     
    A company is a complex business structure. There are additional reporting requirements resulting in higher set-up and administrative costs.
     
    There are two types of companies in Australia.
     
    A private or ‘proprietary’ company is usually owned by a small number of shareholders, with shares in the company remaining private rather than traded on a stock market.
     
    A public company has shares that can be publicly traded on a stock market.
     
    A private company can choose to ‘go public’ by issuing a public offering, usually to gain capital for expansion activities.
     
    If you’re establishing a company, you must register it with the Australian Securities and Investments Commission (ASIC). Company officers and directors must comply with legal obligations under the Corporations Act 2001.
     
    ADVANTAGES DISADVANTAGES
    Limited liability for shareholders More expensive to set up and operate
    Understood and accepted structure Control is shared
    Potential for raising capital Complex reporting requirements
    Easy to sell or pass on Shareholders don’t assume liability for losses
    Profits can be reinvested or paid to shareholders  
  • Trust - An entity that holds property or income for the benefit of others

    A trust is a structure in which a ‘trustee’ holds property, business assets or carries out business activities for the benefit of the trust’s ‘beneficiaries’. For example, a trustee may conduct a business for the benefit of a particular family and distribute the yearly profit to them.
     
    There are two main types of trusts, both of which are set up with trust deeds.
     
    A discretionary trust gives the trustee the authority to distribute funds to each beneficiary at its discretion. This includes the amounts distributed, or whether any distributions are made at all.
     
    In a unit trust, the earnings of the trust are divided according to the number of units held by each member.
     
    Trusts have complex reporting and tax requirements. If you’re considering setting up a trust you should talk to a lawyer or financial advisor about whether it is the right structure for your situation.
       
    ADVANTAGES DISADVANTAGES
    Limited liability, especially for corporate trustees Costs to set up, maintain and reinvest
    Protected assets Hard to change
    Flexible asset and income distribution Can distribute profits but not losses
  • Cooperative - Member-owned business organisation with at least five members

    A cooperative is a member-owned business structure that allows members to pool resources. It belongs to its members and operates for shared benefit.
     
    A cooperative has at least five members, each of whom has equal voting rights regardless of their level of involvement or investment. All members are expected to help run the cooperative.
     
    A cooperative has the same legal status as an individual, so it can sue, or be sued, in its corporate name.
     
    A distributing cooperative has share capital, with members charged a set fee for a ‘share’. The capital is used for the business’s running costs. Profits can be distributed to members, according to how many shares they have.
     
    A non-distributing cooperative doesn’t give returns to its members, but uses any profits to expand or improve existing activities.
     
    ADVANTAGES DISADVANTAGES
    Low registration costs Limited distribution of profits
    Shared responsibility for business activity Equal voting rights regardless of investment
    Members’ equal voting rights  
    Appealing to people with shared interests  
  • Incorporated Association - An entity usually established for recreational, cultural or charitable purposes

    An incorporated association is a legally separate body that operates as a not-for-profit entity. It can own land, sign a lease and appear in court in the same way an individual can.

    An incorporated association can trade, but its primary goal is to serve a business or social community it was set up to support.

    An incorporated association is legally separate from its members. It has a management committee that makes decisions, and the association – rather than the committee members – is legally liable for the decisions.

    An association must have five members at any time.
     
    ADVANTAGES DISADVANTAGES
    Members have similar interests Members can leave quickly
    Minimal reporting requirements Limited fundraising options

Planning templates

Use these free planning templates and guides to help you better plan, prepare, manage, and exit a business. Investing time into proper research and planning can help turn your ideas into reality, and prepare you for what’s to come.

Business plan

A business plan works as a guide when your business is operating; how you operate, planning the future and preparing for risks. It is also often a required document for finance applications.

Marketing plan

An effective marketing plan can help you set clear, realistic and measurable marketing objectives for your business. It can boost your customer base increasing your bottom line.

Emergency plan

Your business is critical to your financial wellbeing, so you’ll want to protect it as much as you can against emergencies and disasters.

Succession plan

Planning for the day you leave your business is a valuable investment.

More help

It’s important to seek help early from the range of advice and support services available to you.

Learn More

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