Business structures

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.
 

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’.
 

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.
 

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.
   

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.
 

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.