Setting up a business structure

If you are starting a small business you will need to work out which type of business structure to use. We explain the benefits and disadvantages of different types of business structures.

Sole trader

A sole trader is the simplest business structure and it is inexpensive to set up because there are few legal and tax formalities.

If you operate as a sole trader, you're responsible for all aspects of the business, including any debts the business incurs and there are no limits on this liability.

You do not need to register the business with ASIC unless you are conducting business under a name other than your personal name. See registering a business name for information on how to register.

To find out about the differences between a sole trader and a company visit business.gov.au.

Partnership

A partnership is two or more people or entities who do business as partners or receive income jointly.

In a partnership, control or management of the business is shared. A partnership is not a separate legal entity so you and your partners are liable for all debts and obligations of the business. A formal partnership agreement is common, but not essential.

The information you need to provide when registering a business name depends on who holds that name. Find out more about the steps to register a business name.

Joint venture

A joint venture is two or more people or entities who join to do business together for a particular purpose, usually a single project, rather than as an ongoing business. A joint venture will often have a joint venture agreement. Find out more about joint ventures at business.gov.au.

Trust

A trust is an obligation imposed on a person, the trustee, to hold property or assets (e.g. business assets) for the benefit of others (known as beneficiaries).

Setting up a trust requires a formal deed, as well as the completion of yearly administrative tasks. If you operate as a trust, the trustee is responsible for its operation. Using a trust structure for your business may have tax advantages.

A trustee can be a company registered with ASIC. If the trust does business under a name other than its own, that name must be registered as a business name with us.

Company

A company is a separate legal entity. This means it has the same rights as a natural person and can incur debt, sue and be sued. The company’s owners (called ‘members’ or ‘shareholders’) can limit their personal liability and are generally not liable for company debts (unless they give personal guarantees to borrow money). Companies are taxed at a different rate.

A company is a complex business structure, with higher set-up and administrative costs. Companies must be registered with ASIC, and company officeholders have legal obligations under the Corporations Act.

You need to register the company with ASIC. Company officers must comply with other legal obligations under the Corporations Act. Find out more about starting a company.

Compare setting a company and a sole trader on business.gov.au.

Differences between a sole trader, partnership, company and trust

Here is a snapshot of the key differences between each type of business structure:

 

Sole Trader

Partnership

Company

Trust

Complexity of business structure

Simple

Moderate

Complex

Highly complex

Cost

Low

Medium

Medium to high

High

Legal obligations

Low

Low to medium

High

Medium

Tax obligations

Low

Low

Medium

High

Separate legal entity

No

No

Yes

Yes

Liability

Unlimited

Unlimited

Limited

Limited (with a corporate trustee)

Help choosing a business structure

Business.gov.au has a great 'Help me decide' tool that can help you work out the business structure that will best suit your needs and what registrations you should consider.

You should also seek advice from a professional business adviser like a lawyer or an accountant. This is especially important for trusts and partnerships as the law on these structures can be complex.

ASIC does not register business structures, we only register business names. There is no requirement to register your business structure.

Last updated: 01/05/2019 06:18