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Understanding Business Structures For Small Businesses

When starting a business, you need to decide the type of business structure. The right structure will depend on factors, such as the size of the company, type of business and personal preference.

Choosing the right structure is important because it will dictate your tax liabilities, responsibilities, assets, paperwork and costs. The good news is, as the business expands and the needs change, you can change the structure accordingly.

Here are the details about each business structure that’s available in Australia:

Sole Trader

The simplest business structure, a sole trader, is the easiest to operate. You will have total control of your assets and make all the decisions related to the business. It has fewer paperwork requirements, and you can use your individual tax file number to submit tax returns. Also, there is no need for payroll tax or superannuation because you are not considered an employee of your business.

The downside of this type of business structure is the liability and risk for your assets if things don’t go well. As for the business’s profit, you are personally liable for the taxes. The business income or loss is considered your personal income tax return.

When your annual income is more than $75,000, you need to register it under goods and services tax (GST). You can visit the Australian Taxation Office to get more details regarding your tax obligations as a sole trader.


As the name implies, this structure involves two people or more who agree to create a business and make a profit. A very common type of partnership is the general partnership, where the partners contribute to the daily management of the business.

Partnership type is also easy to set up and requires minimal reporting. Moreover, partners share profit and losses together. Superannuation and worker’s insurance are not mandatory because partners are not considered employees. It’s also easier to get funding because you do not depend on a single asset. As for the tax, each partner will pay tax separately according to their share of net income.

The disadvantages of this business structure in Australia are the possibility of a dispute over profit and administrative control. It is also difficult to change ownership, and there is no asset protection since the partners are liable personally for the debt gained in the partnership.


A company is a complex business structure. It is a separate legal entity, and the company’s owners are called shareholders. Unlike the other business structures, shareholders can limit their personal liability, and they are not responsible for the debts incurred. A company can either be a private or public entity.

To create a company, you must register under the Corporations Act 2001 and the Australian Securities and Investment Commission. A director will be the one managing the company’s business activities. A company has a high set-up, but the structure is well accepted. Although it has a high operating cost and limited liability, the ownership can be transferred easily.

You can also get significant funding, and you can either divide the profits as dividends or reinvest it back to the company. Taxes are paid according to the company’s profit. There is no tax-free privilege, so every dollar earned will be taxed.

The officers and the directors of a company should specify their roles and duties as these are legal requirements when putting up a company.


This business structure relies on a trustee to perform the business and carry out activities on behalf of the beneficiaries. Trust is not considered a separate legal entity. A trustee can either be a company or an individual. A trustee will also be legally liable for debts incurred by the trust and can use its assets to settle debts.

There are two types of trust: discretionary and unit trust. For a discretionary trust, the income or capital received by the beneficiaries is not fixed because the trustee has the power in distributing the fund to each trust member. It is a well-known business organizational structure because it offers asset protection and flexible income.

Meanwhile, for unit trust, beneficiaries have fixed income and capital where the interest is divided into units, and whatever the beneficiaries own will be given to them. Unlike a discretionary trust, unit trust does not offer asset protection and comes with less flexibility.

Trust has less liability, but assets are protected. It also has flexible assets and income distribution. Moreover, you cannot distribute losses with trust, and it is difficult to dissolve it or create changes.

With regard to the tax, the trustee must get a TFN and present a yearly trust return. The trust does not need to pay tax; however, the government will still evaluate the trustee for tax. To get more details regarding the tax responsibility of a trustee, you can visit the Australian Taxation Office.

Choosing the Best Business Structure

When choosing the best business structures in Australia, you need to deal with a few things in your business. These include the type of business you’re going to start, the risk profile, participation of others and plans for future expansion.

A sole trader is the cheapest when it comes to costs, while structures like companies and trusts require a high amount of cost to keep it going.

Aside from the operational expenditures, taxation will also influence the structure you will choose. For example, the sole trader’s tax is considered personal income tax, while a company must pay a 30% tax for its earnings. A trust structure allows for tax planning, so it can be distributed among the beneficiaries with lower rates.

How you want to own and manage the business will also help you decide the best business plan structure. A sole trader is a structure to choose for those who want total control of the business. On the other hand, partnership depends on the agreement from both parties; thus, the ownership and management can be shared accordingly.

For a company, there is a clear separation of roles and responsibilities between the shareholders and the directors. Directors control the business operations, while the shareholders have the power to appoint directors. This is also similar to a trust.

How Malkoun & Associates Can Help You

When considering what structure will work best for your business, it would be wise to consult your financial and legal advisors. We, at Malkoun & Associates, can assist you in establishing any type of business structure you require. Our top-notch specialists have been working in the financial industry for years. Contact us now to get started!