Choosing a business structure
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.
Your business structure can affect:
- the types of business registrations you require
- your taxation requirements
- your trademark registration
- other legal and financial obligations relating to your business operations.
Deciding on the right business structure
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.
- Inexpensive, simple to set up and easy to maintain
- Greater privacy than other types of structures—sole traders do not have to disclose their profits to the public
- Simple ownership and taxation considerations—you personally own the business profits and assets. Profits are taxed at your personal income tax rate
- Personal liability for all business debts in their entirety—in some cases, you can risk losing personal assets if your business fails
- Few tax concessions are available—tax is paid at your marginal tax rate (this may be higher than a company rate)
- Limited expansion opportunities
Examples of businesses that suit a sole trader structure
A sole trader businesses structure may suit:
- self-employed owners of new small businesses (e.g. trade person, consultant, massage therapist)
- a small franchisee where the start-up business wants to benefit from an established business model and brand (e.g. mowing franchise)
- independent contractors who have left employment and want the flexibility of conducting business with one or more employers (e.g. an IT professional or tradesperson).
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.
- Less expensive to set up than a company
- Simple to administer with profits and losses shared between the partners
- Can combine resources and expertise of different people
- Greater privacy than other types of structures—partnerships do not have to disclose their profits to the public
- All partners are personally responsible for the business debts
- Tax charged at the personal tax rate—as business earnings increase, so will the tax rate
- Ownership can’t be transferred unless all partners agree
- Differences between partners can interfere with business operations
Examples of businesses that suit a partnership structure
A 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.
- Common investment structure to use when an investment partner is not involved in general management
- Can vary the liability between partners
- Ability to combine resources and expertise of different people
- Greater privacy than other types of structures—partnerships do not have to disclose their profits to the public.
- Only general partners can run the business
- Limited partners are only liable up to their investment
- More expensive than registering as a company
- Partners can’t transfer ownership unless all partners agree
- Personal differences between partners can interfere with business operations.
Examples of businesses that suit a limited partnership structure
A 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.
Director identification number
A director of a company, registered Australian body, registered foreign company or Aboriginal and Torres Strait Islander corporation must apply for a director identification number.
The date when you were first appointed as a director and under which Act will determine when you need to apply.
If you were appointed on or before 31 October 2021, you must apply by 30 November 2022.
Get more information about forming a company from Australian Securities and Investments Commission (ASIC).
- Shareholders typically only lose the value of their shares if the company fails
- Legal arrangements are in the company's name, not the director’s
- Shares may be transferred to others
- Low tax rates (the tax rate for companies is less than the highest rate for individuals)
- More regulated than other business structures
- Less private than other structures—in some cases, companies must disclose their profits to the public
- More complex and costly for establishment and operation
- May require personal guarantees from directors or shareholders (e.g. for investment)
- Directors can be held personally liable for debts if they fail to meet their legal obligations
- Shareholder profits are taxed
Examples of businesses that suit a company business structure
A 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.
- Asset protection and limits liability for the business
- Useful for protecting the income or assets of a young person or family—trusts separate the control of an asset from the ownership of the asset
- Control of assets separated from the owner
- Beneficiaries are generally not liable for the trust debts
- Beneficiaries pay tax on income at their own marginal rates
- Significant costs for establishment (more than sole traders and partnerships)
- Complex legal structures that require professional advice to create
- Strict obligations and extensive regulations for the trustee
- Any losses derived cannot be distributed or offset by beneficiaries
- Profits cannot be kept for expansion without having to pay penalty tax rates
Examples of businesses that might suit a trust business structure
A 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.
- Flexibility in legal structure (e.g. a social enterprise might be set up as a company, partnership, incorporated association or cooperative organisation)
- Can be set up as for profit, not-for-profit or as a hybrid
- Extra support is available (e.g. government loans or assistance from private investors backing your cause)
- Increased sense of reward for owners and employers that comes from the social, community or environmental mission
- Ease of marketing and brand identity matched to social mission of the business
- If set up as an incorporated association or a company limited by guarantee, members will not receive a distribution of the profits
Examples of businesses that might suit a social enterprise structure
A 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:
- Incorporated associations
Starting, running and winding up an incorporated association.
Registering, operating and winding up a cooperative.
Registering, running and winding up a fundraising organisation.
Business structure requirements
Each business structure has different registration requirements.
Trademark registration is optional but you should consider it.
Note that you must register for:
- a business name if you are trading under a name other than your registered company name, or if you are a sole trader trading under a name other than your first and last name.
- GST if your gross annual turnover is $75,000 or more, or $150,000 for a non-profit organisation or if you provide taxi or limousine services (regardless of income).
Get help deciding and explore registrations
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:
- Australian business number (ABN) – managed by the Australian Taxation Office (ATO)
- Business name registration – managed by the Australian Securities and Investments Commission (ASIC)
- Company registration and Australian company number (ACN) – managed by ASIC
- Director identification number – managed by the Australian Business Registry Service
- Goods and services tax registration (GST) – managed by ATO
- Limited partnership formation
- Trademark registration – managed by IP Australia.
Restructuring and transferring your business
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:
- sole trader changing to a company – common if you already have an ABN as a sole trader and you wish to grow or protect your assets
- sole trader changing to a partnership – when a sole trader takes on a business partner. When you bring a partner into your business you will need to apply for a new ABN
- partnership changing to a company – this restructure may occur when partners decide there are benefits to operating as a company. When making this restructure you will need to dissolve the existing partnership before setting up the company.
Understand restructuring implications
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.
Additional requirements for companies
If you want your business to operate as a company, you must also register with ASIC. Company directors must also apply for a director identification number.
Exemptions for small business restructures
If 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 name
In some cases, a restructure will involve transferring your business name.
You will need to transfer the name to a new holder if:
- your business is sold
- you want to pass your business name on to a family member or friend
- you are partnering with an existing business
- 1 or more of your business partners has left.
You can transfer your business name through ASIC.
- Read about tax basics for small business.
- Find out more about business structures at Business.gov.au.
- Learn more about setting up a business structure.
- Read about Indigenous Business Australia.
- Learn about working with business advisers.
- Understand the difference between a sole trader and a company.
- Last reviewed: 10 Oct 2022
- Last updated: 1 Mar 2023