Last edited 12 May 2016

Business structures commonly used by small businesses in Australia

The four main business structures commonly used by small businesses in Australia are:

  • Sole trader: an individual operating as the sole person legally responsible for all aspects of the business. Like other structures, as a sole trader you can employ people to help you run your business.
  • Company: a legal entity separate from its shareholders.
  • Partnership: an association of people or entities running a business together, but not as a company.
  • Trust: an entity that holds property or income for the benefit of others.

When deciding on a structure for your business, choose the one that best suits your business needs, keeping in mind that there are advantages and disadvantages for each structure. It's important to investigate each option carefully, as choosing your business structure is an important decision.

Your business structure can determine:

  • the licenses you require how much tax you pay
  • whether you're considered an employee, or the owner of the business
  • your potential personal liability
  • how much control you have over the business
  • ongoing costs and volume of paper work for your business.

It is important to note that you can change your business structure throughout the life of your business. As your business grows and expands, you may decide to change your business structure, or to restructure your business.

Obtaining legal or other professional advice can help you understand your own particular circumstances. Speak to your accountant, or use our Advisor Finder tool to find a business adviser, when deciding on your business's structure and type. It is important to determine your business structure and business type before you register a business or company as the steps may differ.

Main Advantages Main Disadvantages
Sole Proprietorship Easy to create and maintain

Business and owner are legally the same entity

No fees associated with the creation of the business entity

Owner may deduct a net business loss from personal income taxes

Owner is personally liable for any debts, judgments or other liabilities of the business

Owner must pay personal income taxes for all net business profits

LTD Company Limited Liability, in case the company goes in to financial difficulty, the assets and personal finances of shareholders are protected beyond value of their shareholding.

Tax efficiency, more opportunity and great flexibility is offered by limited companies in the case of taxation on profits and on personal income

Professional Status: A professional and corporate image is created by a limited company, thus boosting the value of business.

Must incorporate the company with Companies House.

Generally there are more costs to set up.

One cannot be a director of a company if he is disqualified director or un-discharged bankrupt.

There are certain restrictions with regard to the company name.

The information relating to the owner of the company and the company are displayed on public record.

There are more complex, time consuming accounting and administration requirements.

Withdrawal of money form companies can be difficult.

General Partnership Easy to create and maintain

No fees associated with creation of the business entity

Owners may report their share of net business losses on personal income taxes

All owners are jointly and personally liable for any debts, judgments or other liabilities of the business

Owners must pay personal income taxes for all net business profits

Limited Partnership Easy to attract investors as they are only liable for their total amount of their investment into the business

The limited partners enjoy limited liability for any debts, judgments or other liabilities of the business

The general partners are more free to focus their attention on the business

General partners are able to raise cash without diminishing their control of the business Limited partners can leave the business without dissolving the limited partnership

General partners are jointly and personally liable for any debts, judgments or other liabilities of the business

Can be more expensive to create than a general partnership

Mainly suited to businesses such as real estate investment groups or in the film industry

Limited Liability Company (LLC) Owners of the business enjoy limited liability for the business' debts, judgments and other liabilities, even if the owners engage in significant control of the business

The business profits and losses can be allocated to the owners along different lines than ownership interest (for example, a 10% owner may be allocated 30% of the business' profits)

Owners can choose how the LLC will be taxed, either as a partnership or a corporation

More expensive to establish than a sole proprietorship or partnership
Professional Limited Liability Company Allows state licensed professionals to enjoy the same advantages as a LLC Same disadvantages as a LLC

All members must belong to the same profession

Limited Liability Partnership Business entities associated with things like law, medicine and accounting normally use this

Partners are not liable for the malpractice of other partners

Partners take their share of loss or gain on their personal income taxes

Partners remain personally liable for obligations to business creditors, landlords and lenders

Not every state allows limited liability partnerships

Often limited to only a select few professions

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