Choosing a business structure

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Last updated on October 29, 2019

The legal structure you choose for your business will affect how you register your business and will also have implications for tax.

A business can be legally structured in several ways and there are advantages and disadvantages for each.

We recommend seeking professional advice from your accountant, solicitor or financial adviser before deciding on your business structure, as you will need to consider many legal, financial and tax issues.

It is important to determine your business structure and type of business before you register a business or company as the steps may differ.

There are five main business structures for small business.

They are:

  • Sole trader: an individual trading on their own
  • Partnership: an association of people or entities carrying on a business together but not as a company
  • Company: a legal entity separate from its shareholders
  • Trust: an entity that holds property or income for the benefit of others
  • Co-operative: democratic organisation, owned and controlled by its members for a shared benefit

Business Structures

Sole trader

Partnership

Company

Trust

Co-op

Is the structure difficult to set up?

No

No

Yes

Yes

Yes

Must have minimum of 5 people

Is it expensive to register?

No

No

Yes

Yes

Yes

Do I retain complete control?

Yes

No

No-shareholders can vote according to their shareholding

No

Yes – each member has same voting power 

Are there complex reporting requirements?

No

No

Small companies -simple reporting

Large companies- more complex

Yes

Small co-ops – simple reporting

Large co-ops – more complex

Will my assets (house etc...) be under threat if my business goes into debt?

Yes

Yes

No, not unless you have guaranteed the business.

Not as likely

No, not unless you have guaranteed the business. 

Do I receive full profits made from the business?

Yes

No

Profits are shared according to shareholding

No

Profits shared amongst members 

Can I employ staff?

Yes

Yes

Yes

Yes

Yes 

Do I have to pay myself superannuation, workers comp etc...?

No

No

Yes
(if employed by the company)

Yes
(if employed by the company trustee)

Yes
(if employed by the co-op)

Can I change the legal structure easily?

Yes

No

No

No

No

Do I have the ability to plan tax through avenues like income splitting?

No

Yes

Yes

Yes

Yes

Is it easy to raise capital?

No

Yes

Yes

Yes

Yes

Is it easy to dissolve or exit?

Yes

Yes

Yes

No

Yes
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