One of the key decisions you’ll make when starting a business is its structure. Your choice of structure will depend on the size and type of business and how you want to run it. Each structure may have an impact on key areas such as tax you’re liable to pay, asset protection and costs to set up.

There are a number of structures that you can choose from when starting or expanding your business including:

• sole trader – the simplest structure, especially when you do not know the level of business turnover/profit you may achieve, this will give you a full control at the beginning. When the business expands, you can consider the other structure like a company.
• company – A company is a more complex structure of business as it requires more accounting and financial assistance in managing your tax, payroll and superannuation. A company limits your liability because it’s a separate legal entity.
• partnership – made up of 2 or more people who distribute income or losses.
• trust – where a trustee is responsible for business operations. The trustee can be a company or persons. The trust does not normally pay tax on its profit. Profits are distributed to the beneficiaries. The beneficiaries will include the trust distribution to his/or her tax return.
• co-operative – a member-owned business structure with at least five members.

How to choose a business structure

When you decide on a structure for your business, choose the one that best suits your business needs. Consider each option carefully, as there are key factors and rules to consider for each structure.

Your business structure can determine:

• the licenses you require
• how much tax you pay
• whether you’re considered an employee, or the owner of the business
• your potential personal liability
• how much control you have over the business
• ongoing costs and volume of paperwork for your business

You can change your business structure throughout the life of your business. As your business grows and expands, you may decide to move to a different type of business structure. CGT rollover elections from one structure to another may be available.

Key differences between business structures

	Sole trader	Company	Trust
Cost	Lower	High	High
Complexity of setting up	Simple	Complex	Highly Complex
Tax obligations (High for all if GST or STP registered)	Medium	High	Highly Complex
Legal Liability and obligations	Unlimited	Limited Liability	High
Owner	You	Company shareholders	Trustee(s)
Responsibility for business decisions	You	The director(s)	Trustee(s)
Responsibility for debts or losses	You	Generally, the company	Trustees
Separate bank account needed	Yes (advisable)	Yes	Yes
Extra administration and reporting	No	Yes	Yes