There are a number of business structures that one can choose from. Following are the four major types of business structures most widely used in Australia:

  1. a)  Sole Trader;
  2. b)  Partnership;
  3. c)  Company; and
  4. d)  Trust

Sole Trader

 
Sole trader is the simplest form of business structure. Sole traders can choose to trade under their own name, or can opt to register their business names with the Australian Securities and Investments Commission (“ASIC”). Following are the benefits of a sole trader form of business structure:

  1. a)  easy and inexpensive to start and maintain;
  2. b)  complete control of assets and business decisions;
  3. c)  losses incurred by the business activities, may be offset against other income earned, such as investment income or wages;
  4. d)  the sole trader is not considered as an employee of his own business and is free from any obligation to pay payroll tax, superannuation contributions or workers’ compensation on income drawn from the business; and
  5. e)  relatively easy to change the legal structure if the business grows, or if the sole trader wishes to wind up.

Partnership

A partnership form of business structure involves two or more people but not more than 20 people subject to certain exceptions. Following are the benefits of a partnership form of business structure:

  1. a)  simple and less expensive to set up;
  2. b)  minimal reporting requirements;
  3. c)  sharing of management and staffing responsibilities;
  4. d)  better opportunities for tax planning, such as income splitting between family members than that of a sole trader;
  5. e)  combination of skills, experience and knowledge which can provide a better product or service in the business;
  6. f)  easy access to capital; and
  7. g)  relatively easy to dissolve the business.

Company

 
A company is a separate legal entity capable of holding assets in its own name and conduct a business in its own right. A company can sue and can be sued. Following are the benefits of a company form of business structure:

  1. a)  limited liability for shareholders or owners;
  2. b)  commercially accepted;
  3. c)  ability to raise significant capital;
  4. d)  profits can be reinvested in the company or paid out to the shareholders as dividends;
  5. e)  easy to sell and pass on the ownership; and
  6. f)  it can carry forward losses indefinitely to offset against future profits.

Trust

 

A trust is a form of business structure where a trustee or an individual or a company carries out the business on behalf of the members or beneficiaries of the trust. A trust is not a separate legal entity like a company and it is set up through a trust deed. Following are the two main types of trusts:

  1. a)  Discretionary Trusts, and
  2. b)  Unit Trusts.

Following are the benefits of a trust form of business structure:

  1. a)  reduced liability, especially if it is a corporate trustee;
  2. b)  asset protection; and
  3. c)  flexibility of asset and income distribution.

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