Your business structure identifies how you operate as a trading business. Our business accountants are here to help you understand the key differences between business structures to help you decide which structure is right for your business.

In Australia, there are four main types of company structures: sole traders, partnerships, companies and trusts. Each type has its own advantages and disadvantages and their associated legal and tax obligations. These need to be carefully considered before selecting which one will work best for your business, or changing your business structure.

1. Sole trader

A sole trader is one of the most common business structures in Australia. As a sole trader, you are responsible for all aspects of your business such as decisions, liabilities and profits. This structure offers many advantages, including less paperwork and bureaucracy to get started, more privacy and control over decision-making and the possibility to keep all profits for yourself.

However, there are several drawbacks that come with being a sole trader. Firstly, you will be held personally liable for any debts accrued through your business activities. In addition, you may find it difficult to attract investors or raise capital since all funds must come from your own resources or private loans. Finally, due to the lack of financial assistance you may find yourself struggling with cash flow issues in times when additional funds are needed.

2. Partnership

Partnership is often a popular business structure in Australia, as it allows two or more people to share their resources, skills and knowledge. Partners can have equal say in decisions and split profits evenly, but also need to work together to determine roles, responsibilities and resolve disputes. It’s important for partners to understand the legal implications of running a partnership business before signing off on an agreement.

Unlike sole traders who are legally responsible for all aspects of the business and its debts, partnerships allow multiple owners to share both the workloads and liability. Partnerships are relatively easy to set up with minimal paperwork compared other types of businesses like companies or trusts. All partners must register for taxation purposes using an Australian Business Number (ABN) which makes them eligible for tax concessions such as GST credits.

3. Company

When you set up a company, you create a legal entity that’s separate from you. A company as this provides limited liability protection for its members. A company must be registered with the Australian Securities & Investments Commission (ASIC) before it can begin trading. Once registered, an Australian Company Number (ACN), will be issued to the company along with other important information such as the name of your directors and shareholders. It’s also necessary to register for an Australian Business Number (ABN) which allows different government bodies to identify you for tax purposes.

4. Trust

A Trust business structure is a popular and versatile way to operate a business in Australia. This type of arrangement allows the trust’s trustees to control property on behalf of its beneficiaries, who are usually family members or friends. It is not considered a separate legal entity, meaning the trustee(s) bears full responsibility for the trust’s assets and liabilities. However, it does offer many advantages for businesses that need to maintain low levels of taxation, complete estate planning tasks and possess flexible ownership options.

Trusts are also an effective way to protect assets from creditors as they can be used as holding vehicles for investment income and capital gains which may otherwise be subject to tax liability. This form of business structure also gives great discretion when it comes to distributions among beneficiaries, allowing for reliable asset protection in the event of insolvency or death.