One of the big decisions you’ll have to make when starting a business is what structure best suits your idea. Often entrepreneurs choose their structure based on cost and simplicity, however this is not always the best way for your business needs.
The business structure you choose will determine many things about your business going forward including the licenses you will need, the amount of tax you pay, whether you’re considered an employee or the owner of the business, your potential personal liability and risk, your level of control over the business, your ongoing costs and the volume of paperwork needed.
In our experience with entrepreneurs, there are usually 4 different business structures people are considering.
- Sole Trader – This is the simplest business structure that gives the business owner all the decision making power. Sole Traders can hire staff and have a tax-free threshold, however, risk is personal and it can limit your ability to raise capital/funds.
- Partnership – A partnership is when two or more people go into business together. Partnerships are generally easy to set up and partners share control and management of the business. Partnerships can either be general, where all partners are equally responsible and liable, or limited, where each partner’s responsibility and liability corresponds to the amount of funds they’ve invested.
- Company – Unlike a sole trader or a partnership structure, a company business structure is a separate legal entity, meaning that the company has the same rights as a natural person and can incur debt, sue and be sued. Companies have members or shareholders who own the company, as well as directors who manage it. Companies are generally more complicated and expensive to set up, however you will not have any personal liability for the business.
If you would like more help determining your business structure:
- Book in a 30-minute, no-cost office hours session with our accountant, Stuart from Pursuit Advisers or lawyer, Rob from Pathfinder Law.
- Check out business.gov.au for more detailed explanations of each type of structure
- Compare the pros and cons of different structures using Business Victoria’s summary table