Introduction

Starting a business in Australia can be a challenging and exciting experience, with many different factors to consider. 

One of the most important decisions you'll make is choosing the right business structure for your venture. Whether you're planning to operate as a sole trader, partnership, company, trust, cooperative, or any other type of organisation, each structure has its own set of advantages, disadvantages, and compliance requirements. 

In this article, we'll take a closer look at the different types of business structures available in Australia and help you understand the key considerations for each one. 

We'll also provide resources and links to help you navigate the process of setting up your business and complying with the legal and regulatory requirements. 

Whether you're a seasoned entrepreneur or just starting out, this article will give you the information you need to make informed decisions and ensure the success of your business.

To read an article that covers a wider range of topics on starting a business in Australia read one of our other articles:

How to start a business in Australia

Sole trader

A sole trader is a type of business structure in which a single individual owns and runs the business. The individual is solely responsible for all aspects of the business, including any debts or liabilities incurred. This is the most common type of business structure in Australia and is relatively easy to set up.

Advantages:

• easy to set up and maintain
• full control over the business
• no need to share profits with any partners

Disadvantages:

• unlimited liability for debts and legal action
• may be difficult to raise capital
• the business is not separate from the owner's personal assets

Taxation:

• The sole trader reports their income and expenses on their personal tax return, and the business income is taxed at the individual's marginal tax rate.
• Sole trader needs to register for the Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above certain threshold.

Responsibilities:

• Keep records of all income and expenses
• Register for an Australian Business Number (ABN)
• Register for Goods and Services Tax (GST) if applicable
• Lodge annual income tax returns
• Comply with any industry-specific regulations

A sole trader is a relatively simple and straightforward business structure in which a single individual is responsible for all aspects of the business. However, it also exposes the individual to unlimited liability for any debts or legal action. 

Considering the potential risks and benefits is important before deciding to operate as a sole trader.

Partnership

A partnership is a type of business structure in which two or more individuals or entities own and operate the business together. 

]In a partnership, each partner is considered to be an agent of the partnership and has the authority to bind the partnership to contracts and agreements.

Advantages:

• easy to set up and maintain
• shared management and financial responsibilities
• ability to raise capital from multiple partners

Disadvantages:

• unlimited liability for debts and legal action for all partners
• potential conflicts among partners
• the business is not separate from the partners' personal assets

Taxation:

• The partnership reports its income and expenses on a partnership tax return, and each partner is taxed on their share of the partnership's income on their personal tax return.
• Partnerships must also register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Each partner is responsible for their share of the partnership's debts and liabilities
• Keep records of all income and expenses
• Register for an Australian Business Number (ABN)
• Register for Goods and Services Tax (GST) if applicable
• Lodge annual income tax returns
• Comply with any industry-specific regulations
• Have a partnership agreement in place that outlines the rights, responsibilities and liabilities of each partner

In summary, a partnership is a business structure in which two or more individuals or entities own and operate the business together. 

Partners are jointly and severally liable for the debts and liabilities of the partnership, and the partners share profits and management responsibilities. 

It's important to consider the potential risks and benefits and have a partnership agreement before deciding to operate as a partnership.

A company

A company is a type of business structure in Australia that is separate from its owners, known as shareholders. A company is considered to be a legal entity, meaning it can enter into contracts, own assets, and incur liabilities in its own name.

Advantages:

• Limited liability for shareholders, meaning their personal assets are protected from the company's debts
• ability to raise capital through the sale of shares
• easy to transfer ownership through the sale of shares

Disadvantages:

• More complex compliance requirements, including reporting and filing requirements
• More expensive to set up and maintain compared to other business structures
• Shareholders have limited control over the management of the company

Taxation:

• Companies pay corporate income tax on their taxable income, and shareholders pay personal income tax on dividends paid by the company.
• Companies also need to register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Appointing and remuneration of company directors
• Keeping records of all financial transactions
• Registering for an Australian Business Number (ABN)
• Registering for Goods and Services Tax (GST) if applicable
• Lodging annual income tax returns
• Complying with the Corporations Act 2001 and other relevant laws
• Holding annual general meetings and keeping shareholders informed about the company's financial performance
• Keep company registers including share register and meeting minutes.

In summary, a company is a separate legal entity from its shareholders, meaning that the shareholders have limited liability for the company's debts. 

A company can raise capital through the sale of shares, but it also has complex compliance requirements, and shareholders have limited control over the management of the company.

It's important to consider the potential risks and benefits before setting up a company.

A trust

A trust is a legal arrangement in which a trustee holds legal title to property for the benefit of one or more beneficiaries. 

In the context of business, a trust can be used as a structure to hold assets and conduct business activities. 

In Australia, trusts are governed by the common law and various state and territory legislation.

Advantages:

• Asset protection, as the trust assets are generally separate from the personal assets of the beneficiaries
• Ability to direct the income and capital of the trust to different beneficiaries
• Taxation advantages, as the trust can distribute income to beneficiaries in lower tax bracket

Disadvantages:

• More complex compliance requirements, including reporting and filing requirements
• Trustees have a high degree of fiduciary responsibility and can be held liable for breaches
• Beneficiaries may have limited control over the trust assets and operations

Taxation:

• Trusts are taxed differently than other business structures, and the trustee is responsible for lodging annual tax returns for the trust.
• Trusts can distribute income to beneficiaries, and those beneficiaries are taxed on that income.
• Trusts also need to register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Appointing and remuneration of Trustees
• Keeping records of all financial transactions
• Registering for an Australian Business Number (ABN) if applicable
• Registering for Goods and Services Tax (GST) if applicable
• Lodging annual income tax returns
• Complying with the relevant trust law and any specific terms set out in the trust deed
• Keeping trust assets and beneficiaries interest separate

In summary, a trust is a legal arrangement in which a trustee holds legal title to property for the benefit of one or more beneficiaries. 

Trusts can provide asset protection and offer tax benefits and the ability to direct income and capital to different beneficiaries. 

However, they also have complex compliance requirements, and trustees have a high degree of fiduciary responsibility. 

It's important to consider the potential risks and benefits before setting up a trust.

A cooperative

A cooperative is a type of business structure in which the organisation members collectively own and operate the business. 

Cooperatives are typically used in industries such as agriculture, retail, and credit unions.

Advantages:

• Members collectively own and control the business, ensuring that the business is run democratically and for the benefit of the members
• Members share in the profits of the business
• Allows small businesses to compete with larger businesses by pooling resources and expertise

Disadvantages:

• Complex compliance requirements including reporting and filing requirements
• Members may have limited control over the day-to-day management of the business
• May be difficult to raise capital

Taxation:

• Cooperatives are taxed in the same way as other business structures, and the cooperative is responsible for lodging annual tax returns.
• Income earned by the cooperative is distributed among the members, and each member is taxed on their share of the income on their personal tax return.
• Cooperatives also need to register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Appointing and remuneration of directors or management committee
• Keeping records of all financial transactions
• Registering for an Australian Business Number (ABN)
• Registering for Goods and Services Tax (GST) if applicable
• Lodging annual income tax returns
• Complying with the Cooperatives National Law and other relevant laws
• Holding annual general meetings and keeping members informed about the cooperative's financial performance

In summary, a cooperative is a type of business structure in which the members of the organisation collectively own and operate the business. 

Cooperatives are typically used in industries such as agriculture, retail, and credit unions. 

They allow small businesses to compete with larger businesses by pooling resources and expertise. Still, they also have complex compliance requirements, and members may have limited control over the day-to-day management of the business. 

It's important to consider the potential risks and benefits before setting up a cooperative.

A not for profit

A not-for-profit (NFP) organisation is a type of business structure in Australia that is set up to achieve a specific social or community goal, rather than to make a profit. NFP organisations are often structured as companies or trusts and are eligible for tax concessions.

Advantages:

• Eligible for tax concessions and government grants
• Can access resources and support from government and other organisations
• Can raise funds through donations and grants

Disadvantages:

• Complex compliance requirements including reporting and filing requirements
• Limited ability to generate income through traditional business activities
• May have limited control over the day-to-day management of the organisation

Taxation:

• NFP organisations are taxed differently than for-profit organisations and are eligible for tax concessions such as tax-exempt status or reduced tax rates.
• NFP organisations also need to register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Appointing and remuneration of directors or management committee
• Keeping records of all financial transactions
• Registering for an Australian Business Number (ABN)
• Registering for Goods and Services Tax (GST) if applicable
• Lodging annual income tax returns and financial statements
• Complying with the relevant laws, including the Corporations Act 2001 and the Australian Charities and Not-for-profits Commission Act 2012
• Holding annual general meetings and keeping members informed about the NFP's financial performance

In summary, a not-for-profit organisation is a type of business structure in Australia that is set up to achieve a specific social or community goal, rather than to make a profit. 

NFP organisations are eligible for tax concessions and can access resources and support from the government and other organisations. 

However, they also have complex compliance requirements and may be limited to generating income through traditional business activities. 

It's important to consider the potential risks and benefits before setting up a not-for-profit organisation.

Franchise

A franchise is a type of business structure in which an individual (the franchisee) operates a business using the brand, products, and systems of an existing business (the franchisor). Franchisees are typically required to pay an initial fee and ongoing royalties to the franchisor.

Advantages:

• Franchisees can benefit from the franchisor's established brand and reputation
• Franchisees receive training and support from the franchisor
• Franchisees can benefit from the franchisor's purchasing power and economies of scale

Disadvantages:

• Franchisees may have limited control over the day-to-day operations of the business
• Franchisees are typically required to follow the franchisor's systems and procedures
• Franchisees may have limited ability to make changes to the products or services offered

Taxation:

• Franchisees are typically responsible for their own taxes, and are required to file their own tax returns.
• Franchisees may be required to pay royalties to the franchisor, which may be tax-deductible.

Responsibilities:

• Adhering to the terms of the franchise agreement
• Paying initial and ongoing fees and royalties to the franchisor
• Following the franchisor's systems and procedures
• Complying with any industry-specific regulations
• Keeping records of all financial transactions
• Registering for an Australian Business Number (ABN)
• Registering for Goods and Services Tax (GST) if applicable
• Lodging annual income tax returns

In summary, a franchise is a type of business structure in which an individual operates a business using the brand, products, and systems of an existing business. 

Franchisees can benefit from the franchisor's established brand and reputation, receive training and support, and benefit from the franchisor's purchasing power and economies of scale. 

However, franchisees may have limited control over the business's day-to-day operations and are required to follow the franchisor's systems and procedures. It's important to consider the potential risks and benefits before setting up a franchise.

Joint venture

A joint venture (JV) is a type of business structure in which two or more businesses come together to undertake a specific project or venture. The partners in a joint venture share the risks and rewards of the venture and may also share management responsibilities.

Advantages:

• Allows businesses to pool resources and expertise to undertake larger or more complex projects
• Allows businesses to access new markets and customers
• Can provide a way for businesses to enter into new industries or areas of expertise

Disadvantages:

• Complex compliance requirements, including reporting and filing requirements
• Potential for conflicts among partners
• Partners may have limited control over the day-to-day management of the venture

Taxation:

• Joint ventures are typically taxed as a partnership, and each partner is taxed on their share of the joint venture's income on their personal tax return.
• Joint ventures also need to register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Each partner is responsible for their share of the joint venture's debts and liabilities
• Keeping records of all income and expenses
• Registering for an Australian Business Number (ABN)
• Registering for Goods and Services Tax (GST) if applicable
• Lodge annual income tax returns
• Comply with any industry-specific regulations
• Have a Joint venture agreement in place which outlines the rights, responsibilities, and liabilities of each partner

In summary, a joint venture is a type of business structure in which two or more businesses come together to undertake a specific project or venture. 

Joint ventures allow businesses to pool resources and expertise to undertake larger or more complex projects and to access new markets and customers. 

However, they also have complex compliance requirements, and the potential for conflicts among partners. 

It's important to consider the potential risks and benefits and have a joint venture agreement before deciding to operate as a joint venture.

Incorporated association

An incorporated association is a type of organisation in Australia that is set up to achieve a specific social or community goal and is not for profit. 

Incorporated associations are formed and governed by the specific state or territory laws.

Advantages:

• Legal recognition as a separate entity, which can enter into contracts and own property
• Limited liability for members, meaning their personal assets are protected from the association's debts
• Eligible for government grants and other funding opportunities

Disadvantages:

• Complex compliance requirements, including reporting and filing requirements
• Limited ability to generate income through traditional business activities
• May have limited control over the day-to-day management of the organisation

Taxation:

• Incorporated association are generally tax-exempt, but it's important to check with the relevant state or territory legislation as the rules may vary.
• Incorporated associations also need to register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if their turnover is above a certain threshold.

Responsibilities:

• Appointing and remuneration of directors or management committee
• Keeping records of all financial transactions
• Registering for an Australian Business Number (ABN)
• Registering for Goods and Services Tax (GST) if applicable
• Lod

Australian business structure useful links

Here are a few websites that provide useful information about different business structures in Australia:

Australian government's Business website:

https://www.business.gov.au/

This website provides information on different types of business structures, including sole trader, partnership, company, trust, and more. It also provides information on compliance requirements, taxes, and other legal requirements.

Australian Securities and Investments Commission (ASIC):

https://asic.gov.au/

ASIC is the Australian government's corporate regulator and provides information on different types of business structures, including companies and registered schemes.

Australian Taxation Office (ATO):

https://www.ato.gov.au/

The ATO provides information on taxes and compliance requirements for different types of business structures, including sole traders, partnerships, companies, and trusts.

Australian Cooperative:

‍ https://www.cooperatives.asn.au/

This website provides information on cooperatives, including benefits, compliance requirements, and case studies.

Australian Charities and Not-for-profits Commission (ACNC):

https://www.acnc.gov.au/

The ACNC provides information on not-for-profit organisations, including compliance requirements and tax concessions.

Franchise Council of Australia:

‍ https://www.franchise.org.au/

This website provides information on franchising in Australia, including

Conclusion

In conclusion, choosing the right business structure for your venture is an important decision that can significantly impact your business's success. 

Each type of structure has its own set of advantages, disadvantages, and compliance requirements, so it's important to carefully consider your goals, risks, and the specific needs of your business before making a decision. 

Whether you're planning to operate as a sole trader, partnership, company, trust, cooperative, or any other type of organisation, it's important to understand the legal and regulatory requirements and to seek professional advice if you're unsure.

It's also important to note that the business structure you choose at the beginning may not be the right fit as the business evolves, so it's important to re-evaluate the structure regularly and make changes if necessary.

We hope this article has helped you understand the key considerations for each type of business structure for business in Australia. 

Remember to take time and weigh the pros and cons before choosing the right business structure for your venture and seek professional advice if you need it. 

With the right structure in place, you'll be well on your way to building a successful and sustainable business.

Tip: To read an article that covers a wider range of topics on starting a business in Australia read one of our other articles:
How to start a business in Australia