When starting a business in Australia, one of the most important decisions to make is the type of business structure you will use. The structure you choose will affect your legal and financial obligations, as well as your potential for growth and expansion. In this blog, we look at the different business structures in Australia and what you need to know about each one.

Business Structures

Sole trader

A sole trader is an individual who runs a business on their own. They are personally responsible for all aspects of the business, including its debts and losses. This is the simplest and most common form of business structure in Australia, but it also has the least amount of legal protection.

Partnership

A partnership involves two or more people who share ownership of a business. Each partner is responsible for the business's debts and losses, and profits are split according to the partnership agreement. A partnership can be formed without a formal agreement, but it is recommended to have one to avoid potential disputes.

Company

A company is a separate legal entity from its owners. Shareholders own the company and appoint directors to manage it. Companies have limited liability, which means the shareholders are only liable for the company's debts up to the amount of their share capital. Companies also have greater access to funding and investment opportunities.

Trust

A trust is a business structure where a trustee holds property or assets on behalf of beneficiaries. The trustee is responsible for managing the trust and distributing profits to the beneficiaries. Trusts offer tax benefits and asset protection, but can be more complex to set up and manage than other structures.

Co-operative

A co-operative is a business owned and operated by its members. Members share the profits and have a say in how the business is run. Co-operatives are often used in the agriculture, retail, and finance sectors.

What’s the difference between a sole trader and a company?

The most common query we get asked is what's the main difference between a sole trader? It really comes down to the level of legal protection and personal liability.

As a sole trader, you are the business, and there is no legal separation between you and the business. You are personally responsible for all aspects of the business, including debts and legal obligations. This means that if the business fails, your personal assets, such as your home or savings, may be at risk.

On the other hand, a company is a separate legal entity from its owners. Shareholders own the company and appoint directors to manage it. This means that the company is responsible for its debts and legal obligations, not the shareholders or directors. As a shareholder, your liability is limited to the amount you have invested in the company, which means that your personal assets are generally protected if the business fails.

Another key difference is the way each business structure is taxed. As a sole trader, your business income is taxed as part of your personal income. This means that you will pay tax at your personal tax rate, which can be higher than the company tax rate. As a company, your profits are taxed at the company tax rate, which is generally lower than the personal tax rate.

There are also differences in the way each structure is regulated and the level of reporting required. As a company, you must comply with the Corporations Act 2001 (Cth) and report to the Australian Securities and Investments Commission (ASIC). As a sole trader, you have fewer regulatory requirements, but you must still comply with tax and other legal obligations.

Ultimately, the decision to choose a sole trader or a company structure depends on your personal circumstances, business goals, and level of risk tolerance. It is recommended to seek professional advice from an accountant or lawyer before making a decision.

Profacc Public Accountants Professional Service & Advice

We offer services such as Accounting, Taxation, Self-Managed Superfunds, and Business Structures
We can help with:

  • Business planning
  • Starting a business advice
  • Sole traders / Sole proprietors
  • Partnerships
  • Companies
  • Unit Trusts / Business Trusts
  • Family Trusts / Discretionary Trusts
  • Due diligence
  • Tax File Number applications
  • ABN applications
  • GST registrations
  • PAYG Withholding registrations
  • Fringe Benefit Tax registrations
  • Fuel Tax Credits
  • Company registrations
  • Company de-registrations
  • Trust setup / Trust registrations
  • Business name registrations
  • Business name changes
  • Company secretarial services
  • Company minutes / notices / resolutions
  • Acting as registered address / registered office
  • Liaisons with ASIC
  • Company annual reviews
  • Company share transfers
  • Company director changes
  • Company name changes

For more advice about business structures, try reading another blog: https://profacc.com.au/tips-on-choosing-the-right-structure-for-your-business/

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