Choosing the right business structure is one of the most important decisions a small business owner will make. Whether you’re launching a new venture or planning to restructure an existing business, your choice affects tax efficiency, liability protection, administration costs, and long-term growth potential.
For local business owners—especially those running cafés, trades, consulting firms, retail stores, or service-based businesses—understanding the differences between structures can help protect your assets and support profitability. If you need help, contact us.
Below is a practical breakdown of the key structures, triggers for changing them, and the steps to register and remain compliant.
1. Comparing Core Structures
Australian businesses commonly operate under one of four structures, each offering different benefits and obligations.
Sole Trader
A sole trader structure is the simplest option.
Pros:
- Low setup costs
- Full control over decisions
- Straightforward tax filing
Cons:
- No separation between personal and business liability
- Limited tax planning flexibility
- May be less attractive to lenders or investors
This is best suited for very small businesses, freelancers, and early-stage sole operators.
Partnership
A partnership involves two or more people running a business together.
Pros:
- Easy to establish
- Shared responsibilities and skills
- Income split may create some tax efficiency
Cons:
- Partners are jointly liable for debts
- Potential for disputes
- Limited long-term asset protection
Partnerships work well when rights, roles, and exit strategies are clearly documented.
Company
A company is a separate legal entity with stronger asset protection.
Pros:
- Liability is limited to company assets
- Access to the flat 30% / 25% small business tax rate
- More credibility with suppliers and lenders
- Options for issuing shares and raising capital
Cons:
- Higher setup and ongoing ASIC costs
- More complex reporting (financial statements, ASIC lodgements)
- Directors have legal duties and personal obligations
Companies are ideal for businesses seeking growth, employing staff, or generating substantial profits.
Trust
A trust can be used to hold business assets or run trading operations.
Pros:
- Flexible distribution of profits
- Strong asset protection when structured correctly
- Popular for family businesses
Cons:
- Can be more expensive to set up
- Requires a corporate trustee for full protection
- Must follow the trust deed precisely
Trusts are powerful but require professional guidance to avoid compliance issues.
2. Costs and Administration
When choosing a structure, it’s important to consider ongoing admin and tax obligations.
Typical Costs
- Sole Trader: Minimal setup, standard tax return
- Partnership: Partnership agreement + partnership tax return
- Company: ASIC registration, annual ASIC fee, company tax return, bookkeeping requirements
- Trust: Trust deed, trustee setup, trust tax return, distribution minutes each year
Administrative Workload
Companies and trusts generally require:
- Accurate bookkeeping
- Annual financial statements
- Separate bank accounts
- Director or trustee compliance
- BAS or payroll obligations if registered for GST or employing staff
In contrast, sole traders and partnerships have lower admin responsibilities but also fewer advantages.
3. Triggers to Change Structure
Many businesses begin as sole traders or partnerships but eventually outgrow those structures. Common reasons to restructure include:
Growing Profits
Once taxable income increases, a company structure may offer better tax efficiency through the lower company tax rate.
Protecting Personal Assets
If your business is taking on higher risk—employees, contracts, or expensive equipment—moving to a company or trust may offer stronger protection.
Adding Business Partners or Investors
Companies make it easier to bring partners on board through share ownership.
Building a Long-Term Business
If you plan to scale, hire staff, or sell the business one day, a company or trust structure is more suitable.
Compliance Requirements
Operating at a larger size increases the need for better governance, clear documentation, and formal structures.
Professional advice is essential when restructuring, especially to avoid unnecessary tax costs such as CGT or stamp duty.
4. Steps to Register and Stay Compliant
Setting Up
The setup process depends on the structure chosen:
Sole Trader
- Apply for an ABN
- Register a business name (if needed)
Partnership
- Draft a partnership agreement
- Apply for an ABN
- Create a partnership bank account
Company
- Choose a company name
- Register with ASIC
- Obtain an ACN
- Apply for an ABN and TFN
- Set up a company bank account
Trust
- Draft the trust deed
- Appoint a trustee (often a company)
- Apply for an ABN and TFN
- Open a trust bank account
Ongoing Compliance
Regardless of structure, good governance is essential. Key tasks include:
- Lodging tax returns on time
- Maintaining accurate records
- Meeting ATO reporting requirements
- Making superannuation contributions for employees
- Lodging BAS if GST-registered
- Keeping ASIC records updated (for companies)
- Preparing annual trustee distribution minutes (for trusts)
Failing to follow compliance rules can result in penalties, tax issues, and loss of asset protection benefits.
Final Thoughts
Selecting the right business structure is not just a legal formality—it determines how you manage tax, protect your assets, and plan for the future.
If you’re unsure which structure suits your business, or you’re considering a restructure due to growth, it’s wise to seek advice from an accountant or business adviser who understands your goals and risk profile.