Help us improve our website by completing a quick survey. Start survey now

What type of business structure should you have?

Choosing the right structure is a crucial step when setting up a business. Most choose to operate as a sole trader, partnership, company or trust. Here are some of the pros and cons to each option.

Pro

  • Simple and inexpensive to set up and run
  • You’re in complete control — and keep all the profits
  • Little red tape and paperwork
  • No need to register a business name – you can use your own 

Cons

  • Complete responsibility for business liabilities like debts or employee claims
  • Hard to take time off
  • Can be harder to get finance
  • More difficult changing ownership when selling the business

Tax matters

  • Business profits are treated as personal income
  • You pay tax on profits using your own tax file number (TFN)

Setting up

  • Trade in your own name, or register a business name in each state where you’ll trade (costs vary)
  • Apply for an ABN Australian Business Number (ABN) through the Australian Business Register
  • Register for GST (when applying for your ABN) if you’ll turn over more than $70,000 a year

Ongoing administration

  • Business activity statements
  • Personal income tax returns

Pros

  • Relatively easy and inexpensive to set up and run
  • As all partners jointly own the business and its assets, it’s easier to share responsibility
  • Easier to get finance with the resources of several partners
  • Little ongoing red tape and paperwork

Cons

  • Each partner is personally responsible for all liabilities, regardless of how much of the partnership each owns
  • Partners often disagree. You need to be confident you can work together, even when you don’t see eye to eye
  • Changes of ownership can be difficult, depending on the governing partnership agreement (see below) and financial resources

Tax matters

  • A partnership is not a legal ‘person’ and does not pay tax, but still needs to have a TFN and lodge a return
  • Business profits are distributed among the partners, who pay income tax on them

Setting up

  • Register your business name or trade under the partners’ names
  • Apply for an ABN ABN and TFN through the Australian Business Register
  • Register for GST if you’ll turn over more than $70,000 a year
  • Ask a lawyer to draw up a partnership agreement. It costs around $1,000 and will govern your rights in line with the Partnership Act

Ongoing administration

  • Business activity statements
  • Partnership income tax returns

Pro

  • Reduced personal responsibility for business debts and other liabilities (although lawmakers are increasingly making company directors personally liable to a range of legal actions, while lenders will often ask individuals for a personal guarantee)
  • As a company is a legal ‘person’ there’s flexibility in managing business affairs
  • Flexibility in distributing profits to other shareholders
  • Easy to sell or pass on ownership

Cons

  • More paperwork
  • Higher compliance and set-up costs

Tax matters

  • 30 per cent company tax flat rate
  • Profits can be reinvested in the company or paid out to shareholders as dividends
  • Dividends can come with ‘franking credits’ – credits for the tax already paid by the company, reducing shareholders’ tax
  • Can claim a tax deduction for directors’ wages and other salary costs

Setting up

Ongoing administration

  • Annual company reports
  • Business activity statements
  • Company tax returns

The beneficiaries and trust rules are set out in the “trust deed”.

Pro

  • A trust is run by a trustee for the benefit of the trust’s beneficiaries. The trustee is responsible for any debts, meaning reduced personal liability (especially if the trustee is a company)
  • Flexibility in distributing profits to beneficiaries
  • Easy to sell or pass on ownership

Cons

  • More paperwork
  • Higher compliance and set-up costs
  • Limited life (usually 99 years)

Tax matters

  • Annual profits are distributed to the beneficiaries, who pay tax
  • Trusts generally do not pay tax (there are some exceptions)

Setting up

  • Register your business name with ASIC
  • Apply for an ABN and TFN through the Australian Business Register
  • Register for GST if you’ll turn over more than $70,000 a year
  • Ask a lawyer to draw up the trust deed. It costs around $1,000 and sets out the beneficiaries and trust rules
  • Total costs: around $1,400, plus trustee set-up costs if a company

Ongoing administration

  • Business Activity Statements
  • Beneficiary income tax returns

People viewing blueprint

 Find the right card for your business with our credit card selector

 Manage your small businesses’ day-to-day finances with NetBank for business.

 Stay in control of your costs with a simple merchant plan, with monthly plans from $30.

Important information


As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. All products mentioned on this web page are issued by the Commonwealth Bank of Australia; view our Financial Services Guide (PDF 59kb).

Loading…