Reading time: 5 minutes

When choosing a company structure for your start up, you should consider the advantages and disadvantages of each structure and how you will structure your personal shareholding. Typically, you will choose either a one company business structure or a two company business structure. Several factors are critical in determining your startup structure. For example, you should consider:

  • costs;
  • the complexity of processes;
  • protection of assets;
  • tax; and
  • liability.

You should also think about whether you plan to expand your startup nationally or internationally to ensure your business structure suits your future needs. This can also allow you to avoid unnecessary costs and complications associated with restructuring later down the track. This article will explain the difference between a one company structure and a two company structure.

One Company Structure

In a one company structure, a single company bears all of the business’ responsibilities. This means that the company:

  • trades on behalf of the startup;
  • enters into business contracts;
  • retains ownership of all assets, including intellectual property
  • bears liability; and
  • employs employees.

A company is a separate legal entity, and so shareholders have no legal or beneficial interests in any assets. This means that shareholders are not liable on behalf of the company, to the extent stated in the company constitution and the Corporations Act 2001

Although the one company structure is comparatively simpler and the shareholders have limited liability, this structure doesn’t protect assets from third parties or provide tax-free dividends. If someone sues the company, its assets are at risk to satisfy any debts. 

Two Company Structure

A two-company structure consists of an operating subsidiary company that undertakes the following: 

  • Trades on behalf of the business;
  • Enters into contracts; 
  • Incurs liabilities; and 
  • Employs employees.

The holding company owns all of the business assets including any property, and intellectual property. Having both an operating company and a holding company provides greater asset protection than the one company structure. 

As the company holding assets is distinct and separate from the operating company, your valuable assets are afforded greater protection from third parties, employees, clients, creditors and suppliers.

Another advantage of the two company structure is tax-free dividends. Under the Income Tax Assessment Act 1997, dividends paid from an operating company to a holding company are tax-free as opposed to dividends paid by a company to an owner who has to pay tax. Avoiding tax on dividends allows you to reinvest the saved money efficiently and effectively to benefit your startup.

While the two company structure offers advantages, it also has some disadvantages that are important to note. There are associated complexities with setting up the two companies separately including but not limited to costs, legalities and agreement between the companies. Furthermore, if an operating company acts on behalf of the holding company in the scope of an agent, as per the laws surrounding agency, the holding operating company will be liable for agent’s actions.

The holding company is a separate legal entity from the operating company. Although, in exceptional circumstances, the court may look past the separation of the two companies and view the holding company as the operating company’s shareholder, ‘piercing’ the corporate veil.

While setting up two companies is more complex than setting up one, a significant advantage is its ability to protect assets. While you may currently not have many assets that require protection, it is important to have a business structure that is ready to accommodate the future needs of your startup. 

Personal Holding of Shares

When choosing a company structure for your startup, it is also vital to consider the structure to hold your shares within the company. The different structures each have their respective advantages and disadvantages, but ultimately the structure best suited to holding your shares whether it be individually, through a company or a trust should be determined by your goals and needs regarding your startup.


Within a company, you can choose to hold your shares as an individual – this is comparatively less complex and costly to a company and a trust. Furthermore holding shares in a company as an individual grants you a discount on capital gains tax when you sell the shares, provided you hold the shares for over 12 months. Although owning your shares as an individual is cost-effective, it may not provide you with tax benefits or limited liability that comes with holding your shares in a company or a trust.


Holding your shares within a company has similar advantages to a company business structure, including:

  • Shareholders have limited liability; 
  • Cost-effective set-up;
  • Flexibility for shareholders to decide on their reinvestment strategies; and 
  • Deciding where to direct dividends (to themselves or the holding company). 

However, holding your shares in a company attracts the following disadvantages:

  • Lack of privacy as financial affairs are public;
  • Profits distributed to shareholders are taxable, and
  • Shareholders are not entitled to a capital gains tax discount if they do sell their shares.

Should you choose to follow the two company structure in setting up your startup, the holding company would ‘hold’ your shares.


Holding your shares in a trust may be advantageous including flexibility in distributing income, asset protection and ease in passing the trust on to another trustee. A trust, however, is liable to pay stamp duty and capital gains if the trustee sells its shares. 

Holding shares via a trust is more beneficial than holding shares as an individual or as a company in the sense that it provides asset protection.

Key Takeaways

Each business structure has its advantages and disadvantages. When setting up your startup, some of the most important legal and business considerations involve asset protection and money. Which structure is best suited to your startup will depend on your business’ needs and future goals. If you have any questions about setting up your startup, contact LegalVision’s startup lawyers on 1300 544 755 or fill out the form on this page.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards