If you’re right at the beginning of your business ownership journey and wondering what the different business structures are and what will work for you and your needs, or perhaps you’ve been in business for a while but wondering if you’ve locked in the right one, you’re in luck! 

There are a whole variety of common business structures in Australia that are great for anyone from individuals to entities, and each have their own benefits and considerations when it comes to taxation, liability and governance. 

We’re going to break it down for you, so you can understand what the different business structures are, and which one is right for you!

1. Sole Trader

This is the simplest and most straightforward business structure and means an individual is operating their business on their own. The business is the sole responsibility of the business owner, including profits but also risks and liabilities. 

Some examples of a sole trader include: an individual consultant, accountant, plumber, carpenter, boutique online store, freelance writer.

2. Partnership

A partnership involves two or more people (and up to 20 people) who have a shared ownership of their business. Each of the partners involved share profits, losses and are responsible for making decisions together. Each partner is liable for any debts and obligations that may arise in the business. 

Some examples of a partnership business include: a couple who own a rental property, two companies coming together to form a partnership, a partnership of trusts.

3. Company

A company is a separate legal entity from its business owners (who are shareholders). The company can enter contracts, be taxed separately from its owners, and also sue and be sued separately too. This also means that the company has the same rights as a person, and can incur debt. Unlike a sole trader, or partnership business structure, the business owner (or shareholder) is not liable for the company’s debts. Directors are also required to have a Director ID.

Some examples of a company business structure include: a separate legal entity with a more complex business structure, formally organised business entity owned by shareholders.

4. Trust

A trust is a legal relationship where a trustee (an individual or company) holds assets for the benefit of others (beneficiaries). Trusts are usually used for the purposes of investment or to provide asset protection and estate planning benefits. 

Some examples of a trust include: there are seven different types of trusts including, discretionary, fixed, hybrid, testamentary, special disability, charitable and superannuation trusts.

5. Not-for-profit

A not-for-profit is an entity created for the purposes of charitable, cultural, religious or educational operation. They don’t distribute profits to members or shareholders and can receive tax concessions. 

Some examples of a not-for-profit include: art centres, medical centres and sports clubs. 

How to decide the right structure for you?

Things to consider when deciding on the right business structure for you include: 

• What is the nature of the business?
• How many owners are there?
• What are your plans for growth in the future?
• Who’s responsible for the management of the business?
• How much income do you anticipate to earn?

Don't forget to consult your accountant and financial planner for advice on the right business structure for you. You can organise a consultation with accounting fellow, Jacquie Hannan, here.