Business Structures in Australia

Starting or growing a business is an exciting venture, filled with decisions about products, marketing, and customers. However, one of the most critical decisions you will make is foundational: choosing the right legal structure for your business.

This decision is not just an administrative task; it has long-term consequences for your personal liability, the tax you pay, your ability to raise capital, and your capacity for future growth. Getting it right from the start is a key step in managing risk and building a sustainable, successful enterprise.

Key factors to consider

Before diving into the specific structures, it’s important to consider what you need your structure to do for you. Key factors include:

• Liability: Are you personally responsible for the business’s debts?

• Cost and complexity: How much will it cost and how difficult is it to set up and maintain?

• Tax: How will profits be taxed?

• Asset protection: Are your personal assets, like your family home, protected if the business fails?

• Future needs: Will the structure allow you to bring on investors or partners in the future?

Common business structures in Australia

There are four main structures for operating a business in Australia. Each has distinct advantages and disadvantages.

1. Sole trader
This is the simplest and cheapest structure. You are the business. You use your personal Tax File Number (TFN) to lodge a tax return, and you have full control. The major drawback is unlimited liability. There is no legal separation between you and the business, meaning your personal assets are at risk to cover business debts.

2. Partnership
A partnership involves two or more people or entities running a business together. It’s relatively easy to set up, but like a sole trader, partners generally have unlimited liability. Importantly, this liability is “joint and several,” meaning each partner is responsible for the full amount of the business’s debts, regardless of who incurred them. A comprehensive Partnership Agreement is essential to govern the relationship.

3. Company
A company is a separate legal entity, distinct from its owners (the shareholders) and managers (the directors). The most significant advantage is limited liability. This means shareholder liability is generally limited to the value of their shares, protecting their personal assets. Companies offer flexibility for growth and bringing in new owners, but they have higher setup and ongoing administration costs, with strict duties imposed on directors by law.

4. Trust
A trust is a structure where a person or a company (the trustee) holds and manages assets for the benefit of others (the beneficiaries). The most common type is a Discretionary Trust (or “Family Trust”). Trusts offer excellent asset protection and significant tax flexibility, as income can be distributed to beneficiaries in a tax-effective manner each year. They are more complex to establish and manage, and are often used in conjunction with a company acting as the trustee to provide both liability protection and flexibility.

How we can help

Choosing the right structure is a critical decision that should be made with tailored legal and financial advice. At Ridge Legal, we take the time to understand your venture, your goals for the future, and your tolerance for risk. We help you select and implement the right legal structure to support your growth and protect your assets.

Our commercial law services include:

• Explaining the advantages and disadvantages of each structure as they apply to your specific situation.

• Advising on the most appropriate structure, whether it be a company, trust, partnership, or a strategic combination.

• Working collaboratively with your accountant to ensure the chosen structure is as tax-effective as possible.

• Preparing all necessary legal documents to establish your business correctly, including Trust Deeds, Company Constitutions, and Partnership Agreements.

• Drafting and advising on Shareholder Agreements to govern the relationship between co-owners and provide a clear exit strategy.

To build your business on a strong legal foundation, contact the commercial team at Ridge Legal today.

Disclaimer: The content of this article is intended to provide general information only and does not constitute legal advice. You should seek tailored legal advice for your specific circumstances before taking any action.