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Understanding Business Structure: Choosing the Right Setup for Your Small Business

Choosing the right business structure affects your tax, liability, funding options, and long-term growth. This guide explains the four main types of business structures in Australia, their pros and cons, and how to choose the one that fits your goals.

Why structure matters

 

    • Impacts your tax obligations and reporting requirements

    • Determines your personal liability for business debts

    • Affects how profits are distributed and reinvested

    • Influences your ability to raise capital or bring in partners

1. Sole Trader

Overview: You run the business as an individual. It’s the simplest and cheapest structure.

Pros:

 

    • Easy to set up and manage

    • Full control over decisions

    • Fewer reporting requirements

Cons:

 

    • Personally liable for all debts and legal issues

    • Limited access to capital

    • Taxed at individual rates

Best for: Freelancers, consultants, and early-stage businesses testing an idea.

Quick action: Register for an ABN and set up a separate business bank account.

2. Partnership

Overview: Two or more people share ownership, profits, and responsibilities.

Pros:

 

    • Shared decision-making and workload

    • Simple structure with flexible profit sharing

    • Can pool resources and skills

Cons:

 

    • Joint liability for debts and actions of partners

    • Potential for disputes

    • Requires a formal partnership agreement

Best for: Family businesses, professional practices, or joint ventures.

Quick action: Draft a partnership agreement covering roles, profit split, dispute resolution, and exit terms.

3. Company (Pty Ltd)

Overview: A separate legal entity registered with ASIC. Directors manage the company, shareholders own it.

Pros:

 

    • Limited liability for owners

    • Access to more funding options

    • Taxed at corporate rates (currently 25% for base rate entities)

Cons:

 

    • Higher setup and compliance costs

    • Directors have legal duties and reporting obligations

    • Profits can’t be freely withdrawn — must follow dividend rules

Best for: Growth-focused businesses, those seeking investment, or businesses with significant risk exposure.

Quick action: Register with ASIC, appoint directors, issue shares, and set up a company constitution or use replaceable rules.

4. Trust

Overview: A trustee holds assets and runs the business for the benefit of beneficiaries.

Pros:

 

    • Flexible income distribution

    • Asset protection

    • Potential tax advantages

Cons:

 

    • Complex setup and legal structure

    • Higher accounting and legal costs

    • Trustee has strict legal obligations

Best for: Family businesses, asset protection strategies, or businesses with multiple beneficiaries.

Quick action: Speak to your accountant or lawyer about setting up a discretionary trust and appointing a trustee.

Comparison Table

Structure Liability Tax Rate Setup Cost Flexibility Best For
Sole Trader Unlimited Individual Low High Freelancers, solo operators
Partnership Shared Individual Low Medium Joint ventures, family biz
Company Limited 25% (base rate) Medium High Growth, investment-ready
Trust Trustee liability Varies High High Asset protection, family biz

How to choose the right structure

 

    • Start with your goals: Are you testing an idea, scaling fast, or protecting assets?

    • Consider risk: If your business has legal or financial risk, a company or trust may offer better protection.

    • Think about tax: Income splitting and reinvestment options vary by structure.

    • Plan for growth: Will you need investors, partners, or succession planning?

Quick action: Book a short structure review with BERZY to match your goals with the right setup.

Your business structure isn’t just a legal formality — it shapes how you operate, grow, and protect your assets. Start simple if you’re testing an idea but revisit your structure as your business evolves. BERZY can help you choose, set up, and transition smoothly.

Resources and References

 

    • Australian Business Register (ABR) – For ABN registration and sole trader setup
      https://abr.gov.au

    • Australian Securities and Investments Commission (ASIC) – Company registration, director obligations, and compliance
      https://asic.gov.au

    • Business.gov.au – Government guidance on choosing a business structure, tax, and legal responsibilities
      https://business.gov.au

    • Australian Taxation Office (ATO) – Tax rates, reporting requirements, and trust structures
      https://ato.gov.au

    • BERZY Chartered Accountants – Expert advice on structure selection, setup, and transition
      https://berzy.com.au
      The information provided in this blog is intended for general informational purposes only and should not be construed as legal, financial, or business advice. While we strive to provide accurate and up-to-date information, every business and individual’s situation is unique. Therefore, we strongly recommend seeking professional legal or financial advice tailored to your specific circumstances before making any decisions. Relying solely on the content of this blog without expert guidance may expose you to legal or financial risks.

Disclaimer
The information provided in this blog is intended for general informational purposes only and should not be construed as legal, financial, or business advice. While we strive to provide accurate and up-to-date information, every business and individual’s situation is unique. Therefore, we strongly recommend seeking professional legal or financial advice tailored to your specific circumstances before making any decisions. Relying solely on the content of this blog without expert guidance may expose you to legal or financial risks.