What are the Different Types of Business Structures in Australia?

There are four (4) main types of business structures in Australia — sole trader, company, partnership and trust. Find out what each structure means, its legal requirements and its long-term impacts on your operations. 

 

What is a business structure? 

A business structure refers to the legal structure of your organisation.  

It provides guidelines on:  

• who owns the business,  
• how you should manage it,  
• your tax and legal obligations,  
• administration and reporting duties and  
• the people responsible for decision-making and debt management.  

Identifying the appropriate structure is a vital step when starting and registering a business. In the next section, we listed down the main types of business structures in Australia, including the other recognised structures that don’t fall under the first four types. 

 

Types of business structures in Australia 

The business structures in Australia can be classified into four (4) main types: 1) sole trader, 2) partnership, 3) company and 4) trust. On top of these, the Australian Government also recognizes co-operative, indigenous corporation and joint venture as legal business structures.  

Read on to identify their key differences and which one best fits your business goals. 

 

1. Sole trader

A sole trader is the simplest business structure. It’s owned and managed by a single person. 

Perfect for new businesses, it’s the easiest to set up, with lower costs compared to other structures. 

If your business falls under this category, it means you have full control of your assets and business decisions. However, since you’re the sole owner, you’re also responsible for its debts and losses, including the preparation and lodging of all necessary reports (e.g., financial statements) to the appropriate regulatory body like the Australian Taxation Office (ATO). 

Here are the other elements of this business structure: 

• You can use your personal bank account to keep your business finances.
  Note: Though you’re not required to keep separate accounts, we still recommend you open a business account to keep track of your cash flow and make reporting easier. 

• It requires you to keep your financial records for at least five (5) years. 

• You’re responsible for all risks associated with your business. 

• You’re liable for paying taxes on all business income. 

• It lets you use your individual tax file number (TFN) to lodge tax returns instead of getting a separate TFN. 

 

2. Partnership

If you’re establishing a business with two or more people, a partnership can be an ideal business structure. Under this arrangement, you share the business’s income, control, management, losses and other associated risks with your partners. 

Like the sole trader, this structure is also easy and inexpensive to set up. It also requires minimal reporting requirements.  

What makes a partnership different from the sole trader on top of its number of owners are the following: 

• A partnership requires separate TFN and business bank accounts. 

• Obtaining an Australian business number (ABN) and using it for all transactions are also mandatory for this structure. 

• You and your partner/s should pay tax on the share of the net partnership income each of you receives. 

• Each partner is also responsible for their own superannuation arrangements. 

• You and your partner/s must register for the Goods and Services Tax (GST) if your turnover exceeds $75,000. 

Take note as well that there are three types of partnership: 

• General partnership (GP) – all partners are equally responsible for managing the business. Each partner also has unlimited liability for the debts and obligations the business may incur.  
• Limited partnership (LP) – the liability of general partners is limited to the amount they have contributed to the partnership. 

• Incorporated Limited Partnership (ILP) – partners have limited liability for the debts of the business. But unlike LP, an ILP should have at least one general partner with unlimited liability. If the business cannot meet its obligations, the general partner/s will become personally liable for the shortfall. 

 

3. Company

The next business structure is the company. Compared to sole trader and partnership, it’s more complex and expensive to set up and maintain. It also requires you to comply with all obligations under the Corporations Act 2001. 

A company is a separate legal entity. Its ownership falls to its company shareholders instead of a single person or two or more partners. Meanwhile, directors control its business operations. 

Due to these characteristics, a company has the same rights as a natural person. As an entity with legal rights, it’s liable for its debts and any legal actions taken against it. 

But what about the legal responsibilities of its shareholders and directors? 

• If you’re a shareholder, you’re only financially responsible for paying the company any amount unpaid in your shares if you are called to do so.  
• If you’re a director, you can be liable if you breach your legal obligations.  

The other key elements of a company are as follows: 

• Company members have limited liability. 

• The business income belongs to the company. 

• A company must lodge an annual company tax return to the ATO. 

• Directors must complete a declaration of solvency annually. They should also have a Director ID. 

• A company should also complete an annual review and pay an annual review fee. 

• Companies also have wider access to capital. 

 

4. Trust

A trust is a business structure with no owner/s. Instead, all its legal obligations and business operations fall on the trustee — a person or company responsible for carrying out the business and distributing its profit for the benefit of its beneficiaries.  

It’s the most complicated and expensive to set up. Under this arrangement, it’s best to work with a qualified and licensed professional to understand what you need to do to complete the entire process. 

 

Other business structures in Australia 

Aside from the four standard business structures above, here are the other structures that your business may fall under: 

• Cooperative

  A cooperative is a member-owned entity designed to serve the interests of its members. It usually provides goods and services to its members that are unavailable or too expensive to access as individuals. Among the popular examples of a cooperative are consumer cooperative, farmers’ cooperative and community cooperative.  

 

• Indigenous corporation

  An indigenous corporation is an incorporated legal structure for indigenous business owners. It is registered under the Office of the Registrar of Indigenous Corporations (ORIC).
  If your business is registered as an indigenous corporation, here are the grants, funding and support it may be eligible to receive. 

 

• Joint venture

  A joint venture is an agreement between two or more people, companies or organisations for completing a certain project instead of an actual business. It’s ideal for both short-term and long-term projects dedicated to research and development, product development and market expansion, among others.
  Since this arrangement comprises multiple individuals and/or organisations, the venture is an entity that’s separate from the participants’ other business interests. Meanwhile, the responsibility for profits, losses and costs is shouldered by each participant. 

 

Your chosen business structure is not set in stone. You can still change your existing business structure to a new one as needed. To learn more about this process, check out this official resource. 

If you need help in managing your finances, ABJ Solutions is here to help. Contact us today to learn more about our services.