Reading time: 3 minutes

When launching a new business, we cannot overstate the importance of understanding the different structures available to you. Doing so enables you to choose a business structure that best manages your risks, protects your assets, limits your liability, manages your tax obligations and gives you a strong platform for future growth.

In this series of articles on business structures, we are looking at the various structures through which you can run a business –  sole trader, partnership, company and trust. We are also exploring the advantages and disadvantages of each. Already, we have looked at running a business as a sole trader and partnership as well as the advantages of running your business through a company. We will now move on to consider the disadvantages of running your business through this structure.

What is a Company?

As we have discussed, a company is the most common business structure for start-ups and SMEs. It is a legal entity in itself that is separate from its shareholders and directors. Shareholders, each with limited liability, own the company and directors run it.

What are the Disadvantages?

There are, however, shortcomings to running your business through a company structure. These are summarised below.

1. Cost

Companies can be expensive to establish, maintain and wind up.

2. Legal Obligations

The Australian Securities and Investment Commission (ASIC) which administers the Corporations Act 2001 and other legislation, governs how companies operate. Companies must comply with this legislation.

3. Director’s Duties

Under the Act, directors have the following duties to:

  • Act in good faith;
  • Exercise powers and duties with care and diligence;
  • Not improperly use his or her position to gain an advantage;
  • Not to trade while insolvent; and
  • Keep books and records.

If directors breach their duties, they may be held personally liable for the company’s debts.

4. Tax Reporting

Companies have greater tax reporting requirements than sole traders and partnerships and they can be more complex.

5. Lack of Confidentiality

A company’s financial affairs are public.

6. Tax

There are several disadvantages relating to tax such as:

  • Corporation tax rates will apply and personal tax-free thresholds are not available to companies;
  • Companies are not eligible for the 50% discount on capitals gains made on the disposal of assets held by the company;
  • Shareholders pay tax on their dividends at their marginal rate; and
  • There is no scope for tax planning.

7. Asset Protection

If the company holds all of the business’ valuable assets and intellectual property, and somebody sues the company, they are at risk. For this reason, businesses commonly adopt a two-tier company structure.

  • A holding company owns all of the business’ valuable assets and intellectual property, along with 100% of the shares in an operating company; and
  • An operating company that is the trading entity and subject to litigation and liability.


As discussed in our earlier article, there are a number of advantages to running your business through a company, namely shareholders having limited personal liability and personal asset protection. However, there are disadvantages to running your business through a company, particularly the associated costs and formalities and the lack of protection for your business’ assets.

LegalVision’s business structuring specialists would be delighted to assist you with setting up or changing your business structure and walk you through which structure best suits your business needs. Questions? Please get in touch on 1300 544 755.


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