What Business Structure is Right for you in Australia: Sole Trader, Partnership, Trust or Company?

Choosing the right business structure is one of the first and most important decisions you'll make when starting a business in Australia. The structure you choose affects your legal responsibilities, tax obligations, how much control you have over the business, and will also impact your future expansion and funding options. In Australia, the four main types of business structures are sole trader, partnership, trust, and company.

In this blog post, I’ll explore each structure, breaking down the pros, cons, and key features to help you make an informed choice, before that, let's talk about some of the items that don't change.

Any business structure will allow you to:

• Register a business name
• Register for GST 
• Hire employees
• Commence trading and run your business

1. Sole Trader

A sole trader is the simplest and most common business structure in Australia.  As a sole trader, you run the business on your own and you are legally responsible for all aspects of it.

Key Features:

• Full control of the business
• Easy and inexpensive to set up and run
• You use your individual Tax File Number (TFN) for income tax purposes

Pros:

• Simple and low-cost to start
• Full control and decision-making power
• Fewer regulatory requirements
• All profits go to you

Cons:

• Unlimited liability – your personal assets are at risk for all business liabilities
• Can be harder to raise capital
• Limited tax planning flexibility
• More risk of blurring the line between business and personal expenses

2. Partnership

A partnership involves two or more people (up to 20, generally) who run a business together and share profits, losses, and responsibilities.

Key Features:

• Must have an Australian Business Number (ABN)
• Usually requires a partnership agreement (recommended but not mandatory)
• Not a separate legal entity – partners are personally liable
• Each partner pays tax on their share of the income

Pros:

• Easy and cost-effective to set up
• Shared responsibilities and resources
• Combined skills and expertise

Cons:

• Unlimited liability for each partner
• Potential for disputes between partners
• Shared profits
• Joint and several liability – one partner can be held responsible for the actions of another

3. Trust

A trust is a legal structure where a trustee (an individual or company) holds assets for the benefit of others, known as beneficiaries. Trusts are commonly used for family-run businesses or asset protection.

Key Features:

• Requires a formal trust deed
• Must have a trustee (individual or corporate)
• Can be complex to set up and manage
• Income is distributed to beneficiaries

Pros:

• Asset protection – personal assets are generally protected
• Tax flexibility – income can be distributed to beneficiaries in lower tax brackets
• Can be useful for succession planning

Cons:

• Can be expensive and complex to establish and maintain
• Ongoing administrative and compliance requirements
• Trustees have significant legal responsibilities

4. Company

A company is a legal entity separate from its owners (shareholders). It can enter into contracts, sue and be sued, and is regulated by the Australian Securities and Investments Commission (ASIC).

Key Features:

• Must be registered with ASIC and have an Australian Company Number (ACN)
• Directors manage the company
• Shareholders own the company
• Pays tax at the corporate rate

Pros:

• Limited liability – shareholders are not personally liable for company debts
• Greater access to capital
• More credibility with clients, suppliers, and investors
• Easier to scale

Cons:

• Higher setup and ongoing costs
• More regulatory compliance and reporting
• Profits may be taxed at the company rate, and dividends taxed again in the hands of shareholders

Choosing the Right Structure

There’s no one-size-fits-all solution. Your ideal business structure depends on:

• The nature and size of your business
• Your long-term goals
• Risk and liability considerations
• Tax implications
• Administrative capacity and comfort.

It’s a good idea to consult with a business adviser, accountant, or lawyer before deciding. The right structure can save you money, protect your assets, and support your growth over time.

Final Thoughts

Whether you're starting a side hustle, launching a small business, or planning a startup to revolutionise an industry, choosing the right business structure lays the foundation for success. Take the time to evaluate your options carefully – the decision you make today can impact your business for years to come.

Need help setting up your structure? Speak to us and see if we can help.