Choosing the Right Business Structure in Australia

Choosing the right business structure is one of the first—and most important—decisions you’ll make when starting a business. The structure you choose affects your taxes, liability, compliance obligations, and ability to grow.

This guide explains the main business structures available in Australia and helps you decide which is right for you.

Overview: Business Structures at a Glance

Sole Trader

What Is It?

A sole trader is the simplest business structure. You operate the business in your own name (or a registered business name), and there’s no legal separation between you and your business.

Advantages

• Simple to set up: Just get an ABN and start trading
• Low cost: Minimal registration and compliance costs
• Full control: You make all the decisions
• Simple tax: Business income is part of your personal tax return

Disadvantages

• Unlimited liability: You’re personally responsible for all debts and legal claims
• Limited growth: Hard to bring in partners or investors
• Perception: May appear less established to some clients

Best For

• Freelancers and consultants
• Low-risk businesses
• Testing a business idea
• Businesses with minimal assets to protect

Getting Started

1. Apply for an ABN (free)
2. Register a business name if not using your personal name ($39-102 via ASIC)
3. Register for GST if turnover exceeds $75,000

Partnership

What Is It?

A partnership is when two or more people (or entities) run a business together and share the profits. Each partner has a say in the business and shares responsibility.

Advantages

• Shared resources: Pool skills, capital, and networks
• Simple tax: Profits distributed to partners and taxed at their personal rates
• Flexibility: Partners can agree how to split profits and responsibilities

Disadvantages

• Joint and several liability: Each partner is liable for all partnership debts—even those created by other partners
• Disputes: Disagreements can be difficult without a clear agreement
• Difficult to transfer: Partners can’t easily sell their share

Best For

• Professional practices (accountants, lawyers, doctors)
• Family businesses
• Joint ventures with defined outcomes

Key Requirements

• Partnership agreement (highly recommended)
• Partnership ABN
• Individual partner ABNs
• GST registration if applicable

Company (Pty Ltd)

What Is It?

A proprietary limited company (Pty Ltd) is a separate legal entity from its owners (shareholders). The company can own property, incur debts, and enter contracts in its own name.

Advantages

• Limited liability: Shareholders are generally not personally liable for company debts
• Professional image: Companies are often perceived as more established
• Investment ready: Easier to bring in investors and issue shares
• Perpetual existence: Company continues even if shareholders change
• Tax benefits: Access to 25% company tax rate (small business)

Disadvantages

• Higher setup costs: ASIC fees and registration costs
• Ongoing compliance: Annual reviews, ASIC fees, financial records
• Complexity: More paperwork and governance requirements
• Trapped profits: Taking money out of a company involves tax considerations

Best For

• Businesses seeking investment
• Higher-risk businesses needing liability protection
• Businesses with significant assets
• Anyone planning to sell the business eventually

Key Requirements

• At least one director (must be Australian resident)
• At least one shareholder
• Registered office address in Australia
• Company constitution
• ASIC registration ($576 government fee)

Trust

What Is It?

A trust is a structure where a trustee holds and manages assets for the benefit of beneficiaries. The most common types for business are discretionary (family) trusts and unit trusts.

Advantages

• Tax flexibility: Distribute income to beneficiaries in lower tax brackets
• Asset protection: Properly structured, assets may be protected from creditors
• Estate planning: Can help with succession and wealth transfer

Disadvantages

• Complex: Requires careful setup and ongoing management
• Costly: Higher establishment and accounting costs
• Less flexible: Some decisions are harder to reverse
• Compliance: Specific tax rules and lodgement requirements

Best For

• Family businesses with asset protection needs
• Investment property holdings
• Wealth distribution planning
• Established businesses with specific tax planning needs

Key Requirements

• Trust deed
• Appointed trustee (often a company)
• Identified beneficiaries
• TFN for the trust
• Professional advice recommended

Making Your Decision

Questions to Consider

1. What’s your risk level? If you face significant liability (e.g., professional advice, physical products, employees), a company provides protection.

2. Do you plan to seek investment? Investors almost always require a Pty Ltd structure.

3. How much income do you expect? If earning over ~$90,000, the company tax rate (25%) may be more favourable than personal rates.

4. Will you have partners? Multiple owners often need a company structure with a shareholder agreement.

5. How much complexity can you manage? Sole trader is simplest; trusts are most complex.

Common Paths

• Just starting, testing the waters: Sole trader → convert to company when proven
• Planning to grow and seek investment: Company from day one
• Family business with assets: Company as trustee for a family trust
• Two founders, equal partners: Company with shareholder agreement

Changing Structure Later

You can change your business structure as your needs evolve, but it involves:

• Potential CGT (capital gains tax) implications
• Transfer of assets and contracts
• Informing customers and suppliers
• New registrations and compliance setup

It’s often easier (and cheaper) to choose the right structure from the start if you have a clear vision for your business.

Next Steps

Ready to Register?

ExaLaw can help you set up your chosen structure:

• Register a Company – Full Pty Ltd setup with all documents
• Get an ABN – For sole traders and partnerships
• Create a Partnership Agreement – Essential for any partnership
• Shareholder Agreement – Protect your company relationship

Need Advice?

Not sure which structure is right for you? Our AI can help you think through the options, or you can consult with a lawyer from our network.

This guide provides general information only and is not legal or tax advice. Consider seeking professional advice for your specific situation.