Your business structure

Deciding which business structure best suits your needs

If you are thinking of starting a business, you will need to look at the benefits and disadvantages of different business structures and work out which structure best suits your requirements.

The most common types of business structures are:

  • company
  • individual (sole trader)
  • partnership, and
  • trust.

Before deciding which business structure to use, we recommend you seek advice from a professional business adviser – for example, a lawyer or an accountant.

Company

A company is a separate legal entity. This means it has the same rights as a natural person and can incur debt, sue and be sued.  The company’s owners (the shareholders) can limit their personal liability and are generally not liable for company debts. 

A company is a complex business structure, with higher set-up costs and administrative costs because of additional reporting requirements. You need to register a company with ASIC, and company officers must comply with legal obligations under the Corporations Act.

Sole trader

A sole trader is the simplest business structure. The structure is inexpensive to set up because there are few legal and tax formalities.  If you choose to operate your business under a name other than your own, you must register the business name with ASIC.

If you operate your business as a sole trader, you trade on your own and control and manage the business. You are legally responsible for all aspects of the business and personally liable for debts the business incurs (there are no limits on this liability).

Partnership

A partnership is an association of people who carry on a business as partners or receive income jointly. A partnership is relatively inexpensive to set up and operate. If you carry on a business under a name that is not the names of each partner, you must register the business name with ASIC. A formal partnership agreement is common, but not essential.

In a partnership, control or management of the business is shared and you and your partners are personally liable for all debts and obligations of the business. There are potentially no limits on this liability, as a partnership is not a separate legal entity.

Trust

A trust is an obligation imposed on a person – a trustee – to hold property or assets (e.g. business assets) for the benefit of others. These others are known as beneficiaries.

Setting up a trust can be expensive because a formal deed is required and there are formal yearly administrative tasks for the trustee to undertake.

If you operate your business as a trust, the trustee is legally responsible for its operations. A trustee of a trust can be a company, providing some asset protection. You do not need to register the trust with ASIC. However, if the trustee is a company it must be registered with ASIC and if the trust carries on business under a name other than its own name, the name must be registered as a business name with ASIC.

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Last updated: 23/03/2016 03:08