Business and Trade

Types Of Business Structures In Australia: Choose The Best For You

Want to start a business? But confused about deciding the appropriate structure for it? Well, in this article we will share a detailed account of different types of business structures that you can register in Australia. Choosing the right structure for your business will make a significant impact on legal and operational risk, tax obligations, asset protection, legal obligations and client-handling as well. 

You can change your business structure. Yes, it’s allowed. But then you have to face numerous difficulties because complexity occurs in changing the legal obligations. So, you should always look for the right structure for your business at the earliest stage.

What are the different structures of business that you may choose in Australia?

There are usually four different structures that you may choose for your business in Australia – sole traders, partnerships, companies and trusts.

  • Sole traders: If you run a small-scale business that is completely dependent on your personal skills and talents, you can opt for a sole trader. You can trade using your personal name or business name. The advantages of this type of business include direct ownership of the business and all its success, low costs and legal procedure requirement at the beginning, greater privacy and more flexibility to change the structure or disband completely. 
  • Partnerships: A partnership business is conducted by two or more people who can have full authority as owners of the business. There are certain advantages of partnership businesses like a combination of skills of two different persons of two different perspectives, some tax relaxation, and automatic dissolution of partnership at the death of one of the partners and distribution of taxable income or loss among the partners. But, there is no limit to the liabilities of the two partners and also each of them is responsible for the other’s share of business liability. For tax relaxation, they have to file an income tax return.
  • Companies: Companies are generally of two types – public companies and private companies. But there are certain drawbacks of setting up a company. Compliance costs give rise to a more complicated and expensive structure. In addition to that, there occur legal and financial reporting obligations. If you own start-up business, registering as a company is not suitable.
  • Trusts: Third parties are given control to legally run the business. They are termed, trustees. They can distribute capital or income to beneficiaries who hold shares in a trust. There are two usual types of trusts – discretionary and unit. Just as the company or partnership business, a trust needs to have a Tax File Number. 

The advantages of a trust include the holding of property for beneficiaries, the flexibility of distribution in income or capital and also asset protection (specifically in the case of a discretionary trust). You can also get several tax-related benefits from a trust. Like other structures, trusts also have some disadvantages. A situation may arise when you have to dismantle the trust. But, that can create a variety of problems. For the trust, you have to file a separate trust tax return. Moreover, beneficiaries, who receive income distributions from the trust, need to pay their income taxes on them.

What points you should keep in mind while choosing a business structure?

When you’re going to start a business, the first and foremost point you should think about is, which structure will actually offer you benefits in the long term and is most likely to achieve your business goals. The following points may help you while opening the business.

  • Type of business: You have to first think about what type of business you’re going to run. If you have a clear plan on this, it will be easier for you to decide on the right structure.
  • Risk profile: No business venture is devoid of any risk. So, while choosing the structure, it is recommended to assess the potential risks it may pose in future.
  • Growth plans: How do you plan to make your business grow? This is a very important point you should keep in mind because with time the market changes and you have to grow your business to make yourself self-sustainable. If you prepare a blueprint for the development of your business at first, you can choose the structure in a much simpler way.
  • Involvement of others: A business is ought to involve a variety of people. As an owner and proprietor, you have to handle them all. At the start of your business, it is advisable to make a list of people you will be employing.
  • Decision-making technique: There are different decision-making techniques, which you should also think of while choosing the right structure because the different structure will allow you to think differently.

What questions you should ask before choosing a structure?

Following is the list of questions that you should ask while choosing a structure.

  • Is it expensive to register? 

For sole trader and partnership, the answer is no. While it is yes for company and trust.

  • Is it difficult to set up? 

It is not difficult for sole trader or partnership but setting a company or trust is difficult.

  • Does it offer complete control over decision-making? 

This is only applicable to sole traders.

  • Is it easy to raise capital? 

For sole traders, it is very difficult to raise the capital, while you can do it in partnership or company or trust.

  • Is it easy to dismantle? 

You can do this for all of them except trust.

  • Do we get tax benefits? 

You cannot get any tax benefit only if your business is registered as a sole trader.

  • Can I change the structure? 

You can only change the sole trader structure.

  • Can I retain all profits? 

This is also only applicable to a sole trader.

Read More:- 7 Beneficial Lessons From the Startup Trenches

Ending note

If you have more questions or queries regarding starting up your business in Perth, you may contact relevant organizations that will provide you with reliable financial services Perth.

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