A business structure is the way a business is legally organised. Choosing a business structure will be one of the most important decisions you make when starting your business. Show Your business structure can affect:
On this page
When considering a business structure, you should think about the advantages and disadvantages each type offers. Once you decide on a business structure, your solicitor or accountant may need to prepare any required legal documentation.
A sole trader business is a simple structure where 1 individual decides to start and run their own business—this individual is known as the sole trader. Sole traders are legally responsible for all aspects of their business, including debts, invoicing, taxation and business operations. Advantages
Disadvantages
Examples of businesses that suit a sole trader structureA sole trader businesses structure may suit:
A partnership is a business structure made up of 2 or more individuals. In a partnership, the business decisions, income and losses are distributed between the partners. Partnerships are governed by the Partnership Act 1891. This legislation sets out the rules and obligations for the partners, including a joint liability on all business debts. Advantages
Disadvantages
Examples of businesses that suit a partnership structureA partnership business structure may suit 2 or more people wanting to work together to start a business who are prepared to pool their resources and skills, and share the profits, tax obligations and risks (e.g. professional services).
A limited partnership is a structure where 2 or more individuals form a partnership with a minimum of 1 general partner and 1 limited partner. A general partner is the individual who runs the daily business operations. In some cases, they may have unlimited liability, meaning that they are personally liable for all business debts and must pay if the business itself does not have enough cash or business assets to cover them. Limited partners do not participate in the running business—they are only liable for the amount of their investment. Read about registering a limited partnership. Advantages
Disadvantages
Examples of businesses that suit a limited partnership structureA limited partnership structure may suit people wanting to fund a business without having to participate in the daily operations (e.g. a parent assisting a child who is a young adult to start a business; a business investor wanting to invest in an entrepreneur).
A company business structure is an independent legal entity established by company directors and owned by shareholders. A company can incur debt, sue and be sued. Company directors may be held personally liable if found to be in breach of their legal obligations. All companies in Australia must be registered under Australian corporations law and are governed by the Corporations Act 2001. Get more information about forming a company from Australian Securities and Investments Commission (ASIC). Advantages
Disadvantages
Examples of businesses that suit a company business structureA company business structure may suit any business where there are up to 50 shareholders and one or more directors who manage and run the business (e.g. energy, information and technology, arts and entertainment and education).
A trust business structure is a legal relationship between 2 or more individuals. In this structure, a trustee (an individual or a company) carries out business for the benefit of other people (the beneficiaries). The trustee is responsible for all the business operations, including income and losses. Advantages
Disadvantages
Examples of businesses that might suit a trust business structureA trust business structure may suit family businesses where the family members are comfortable having a trustee distributing the capital or income to each family member (e.g. family-run retail store).
Social enterprises exist to benefit the public, community and environment. Social enterprises can be set up as any legal structure (e.g. company, partnership, cooperative organisation, incorporated association). Where set up as an incorporated association, the enterprise will have members (a group of individuals) and a governing body (a separate legal entity). Social enterprises can be for profit, not-for-profit or a hybrid. In some cases, profits of the business will not be distributed to the members but are reinvested into the activities designed to achieve the purpose of the social enterprise. Advantages
Disadvantages
Examples of businesses that might suit a social enterprise structureA social enterprise may suit a business with a social, environmental, cultural or political mission (e.g. organic farm and café, micro-lending business, community-based organisation).
You may want to operate your organisation for the benefit of a group or community, as a charity or as a not-for-profit. If so, there are legal structures that suit these types of organisations. Each structure has different legal obligations, liabilities, advantages and disadvantages. To help you decide which structure is best for you, learn more on the Office of Fair Trading website:
Each business structure has different registration requirements. Trademark registration is optional but you should consider it. Note that you must register for:
Use Business.gov.au's Help me decide tool to help you decide which structure is right for your business. Learn more about each of these registrations:
As your business grows, you may need to consider a different business structure. Common situations where a restructure may be beneficial to your business include:
Business restructures have implications for your legal, financial and regulatory obligations and may affect your personal liability. It's important to seek professional advice (legal and financial) to ensure you understand how the changes will impact you.
If you want your business to operate as a company, you must also register with ASIC. Exemptions for small business restructuresIf you are a small business owner restructuring your sole trader, partnership or discretionary trust structure to a company structure, you may be eligible for a transfer duty exemption. Transferring your business nameIn some cases, a restructure will involve transferring your business name. You will need to transfer the name to a new holder if:
You can transfer your business name through ASIC. Also consider...
|