What are the different types of business structures?

When it comes to starting a business, or watching your business grow, ensuring you have the correct business structure for your circumstances is super important in so many ways. But, in saying that, we understand the whole process can be very overwhelming and a struggle to comprehend.

Business Structures

To try and make the process a little easier, we have collated a range of information regarding the different business structures on offer to Australian businesses, and some benefits for each option. If you have any further questions, give Bottom Line Control Sunshine Coast accountants a call on 5471 7077 and we would be happy to assist further.

What are the different types of business structures?

There are four common business structures that are used by businesses in Australia:

  • Company
  • Partnership
  • Sole Trader
  • Trust

What is a Company?

A company is a separate legal entity which is run by 1 or more directors and has shareholders, who own the business. A company is one of the most expensive business structures to setup and run, with larger administration costs, as well as additional reporting requirements.

What is a Partnership?

A partnership arrangement is when two people,or a group of people, are running a business together however it is not a company.

What is a Sole Trader?

A sole trader is a single individual who is running a business themselves. That person is legally responsible for any and all aspects of the business, however they may employ other people to assist.

What is a Trust?

Finally, a trust is a legal entity that has been created to hold income or property for the benefit of others.

What are the differences between business structures?

Each structure differs slightly to the others, including:

Business Structures
Table courtesy of ASIC - Setting up a business structure

What factors affect what business structure you should choose?

When it comes to choosing the correct business structure for your exact situation, there are a range of factors you need to consider:

  • The type of business you are going to run
  • Will you have an ABN?
  • What name will the business trade under?
  • Whether the business is going to be a separate legal entity or not
  • How your business is to be controlled and managed
  • What the purpose of the business is
  • What level of asset protection do you require?
  • Tax requirements
  • Who is going to receive the income of the business?

This list is not exhaustive, and there are many other factors to consider. Ensure you obtain the help of a professional, such as an accountant, as they will be able to assist with every step of the process.

What benefits do each business structure offer?

Every business structure offers different benefits to different people, which is why we have put together just a few advantages for each arrangement.

Company

  • Separate legal entity
  • Company, not owners, are liable for debt
  • Lower tax rate
  • The money a company earns is owned by the company
  • Liabilities of the company's shareholders may be limited to their share capital - shareholders' personal assets cannot usually be seized to pay company debts
  • Company structure ensures continuity if a key person dies (as shares can be transferred)

Partnership

  • Relatively inexpensive to set up and operate
  • Simple to administer
  • Joint income arrangement
  • Not a separate legal entity
  • Can use a trading business name to carry on business
  • Do not pay income tax on its income - the parties to the partnership pay tax on their portion only

Sole Trader

  • Simplest business structure
  • Lowest set-up costs
  • Low legal and tax formalities on creation
  • Do not need to register with ASIC, unless your business is conducted under another name that isn't your personal name
  • Do not need to disclose profits to the public
  • Less paperwork than other structures

Trust

  • Holds property or income on behalf of another
  • Asset protection
  • Liability is limited in relation to the business
  • Very flexible for tax purposes
  • The beneficiaries of a trust are not usually responsible for trust debts
  • Separates out the control of an asset from the owner of the asset

What business structure is best suited to my needs?

When it comes to figuring out which business structure is best for your needs, it really depends on your circumstances and your particular business arrangement as to what the optimal choice is. Every structure benefits someone and a variety of considerations need to be taken into account when setting one up, so have a chat with your local professional to find out more (or check out our Business Structure Advice page for more information).

If you would like to know more about how different structures are arranged in different states and territories, head over to the Department of Industry, Innovation and Science business structures page for more information.

Why is choosing the correct business structure important?

When it comes to choosing the correct business structure for your circumstances, getting it right the first time can save a lot of time and money in the long term. Although circumstances change, and businesses grow, choosing the correct structure offers a range of benefits such as:

  • Correct asset protection
  • Overall tax implications
  • Continuity of the business as it grows
  • Liability requirements
  • And many more!

Your accounting specialists when it comes to the correct business structure for your needs

Starting a business can involve a sometimes overwhelming number of decisions, all seemingly crucial. Deciding which structure to use when setting up your business can have long-term effects on tax, asset protection, and costs. Bottom Line Control accountants can offer professional advice customised for your specific business to ensure you’re off to the best start. Find out how we can help to on 5471 7077 or complete an appointment request form today.

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Resources:

Australian Government - Australian Taxation Office (Choosing your business structure): https://www.ato.gov.au/business/starting-your-own-business/before-you-get-started/choosing-your-business-structure/

Australian Government - Department of Industry, Innovation and Science (Business structures and types): https://www.business.gov.au/planning/business-structures-and-types

Australian Government - Department of Industry, Innovation and Science (Business structures in your state or territory): https://www.business.gov.au/planning/business-structures-and-types/business-structures/business-structures-in-your-state-or-territory

Australian Government - ASIC (Setting up a business structure): https://asic.gov.au/for-business/small-business/starting-a-small-business/setting-up-a-business-structure/

Queensland Government - Business Queensland (Consider your business structure): https://www.business.qld.gov.au/starting-business/types-legal-structures/setting-up/consider-business-structure

Queensland Government - Business Queensland (Business Structures): https://www.business.qld.gov.au/starting-business/types-legal-structures/business-structures

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*Disclaimer: Please note, this information is general in nature and may not be suited to your circumstances. Please ensure you complete your own research and

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