Article Category - Commercial Law Advice Buying or Selling a Business 01 September 2021

There's a lot to think about when setting up a new business, but one of the most important considerations is your business structure. Your choice will have a significant impact on many areas of the business including legal and accounting costs, tax obligations, asset protection, and legal and operational risks.

There are four common business structures:

1. Sole Trader

This is the simplest business structure. As a sole trader, you operate the business under your own name. A sole trader is the choice of most of Australia's small businesses. It is most appropriate for businesses with one owner and maybe a few staff such as a tradesperson, musicians, home businesses, small retailers (both with a premise and online).

2. Partnership

A partnership is defined as two or more people carrying on a business in common with a view of profit. The partners in a partnership do not need to have entered into a formal agreement for a partnership to be formed. Generally, a partnership is simple and inexpensive to set up.

3. Trust

A trust can be used to operate a business. The trust can take different forms such as a discretionary trust of a unit trust. Further, the trustee of a trust may be individuals or a company (corporate trustee). The trustee controls the trust and is responsible for distributing the profits from the business to the beneficiaries of the trust.

4. Company

A company structure is probably the most versatile business structure. This is especially the case when the business is growing and scaling up. A company is generally the most expensive structure to establish and there are ongoing costs in operating a company. However, these costs are often outweighed by the flexibility and benefits of a company structure. A company has a separate legal existence from the shareholders and directors. It can borrow money and enter into contracts in its own name.

Which structure is the right one, and how do you decide?

The best way to make an informed decision is to get professional advice. Each person starting a business will have different needs and requirements, and getting things right when establishing your business can save you a substantial amount of time and money in the long term.

If you have a new business idea or need advice regarding your business structure, contact our experienced team on (02) 63312911. We're here to help! 

David Killen | Solicitor