Reading time: 4 minutes

Starting a new business has never been easier. With ecommerce opportunities aplenty, and more traditional small business continuing to grow strongly, Australian’s are launching thousands of new businesses a day. Even though thinking about the potential business structures for your new business is one of the less interesting aspects of launching, it’s important that you sit down and consider your options before you start trading. There are a number of business structures available in Australia, and the structure you choose early on will affect both your legal and operational risk, tax obligations and legal costs. This article sets out the most common legal structures used by Australian businesses.

Sole Trader

The simplest legal structure under which you can run a business is as a sole trader. As a sole trader you operate and manage a business under your own name. The majority of Australian businesses are in fact run by sole traders. This business structure is cheap to set up, simple to administer and easy to wind down. If you’re running a simple business, you’re covered by insurance and you don’t generate a huge amount of revenue, setting yourself up as a sole trader makes a lot of sense.

There are however some downsides to the sole trader business structure. You take on all the risk of the business personally, meaning you can be sued as an individual if something goes wrong. Obviously you can take out insurance, but you are better off if your personal property isn’t on the line if a business deal goes south. Furthermore, your earnings are taxed as personal income, so if you do well in a given year there are few opportunities for tax planning.


If you’re going into business with a partner, a partnership structure can be a great way to set yourselves up. A partnership basically consists of a group of entities that run a business as partners. The entities are normally individuals, but can be companies. A partnership isn’t a legal entity but it will have an ABN and TFN. It’s cheap to set one up; all you need is a partnership agreement.

Unfortunately the big problem with a partnership relates to the fact that each partner is legally responsible for any losses and liabilities racked up by the other partners. This includes superannuation and taxation obligations. You need to be really comfortable with your partner if you’re going to go down this route.

A partnership structure also doesn’t leave much scope for tax planning.


Perhaps the most common business structure for start-ups and larger SMEs (as well as all of Australia’s large companies), is the company structure. The limited liability company has been credited with launching the revolution in business which ultimately led to the industrial revolution in Western Europe. The most important benefit of the company structure is that it is a legal entity which is separate to its shareholders and directors. This means if the company goes insolvent, the shareholders are protected; they will lose their investment in the company, but are not personally liable for the company’s debts.

Another benefit of using a company structure is that you can bring on board investors easily and restructure your business effectively.

There are costs to setting up a company. These include the initial set-up costs, annual fees which must be paid to ASIC and compliance costs.


Finally, you may wish to consider a trust structure when setting up your business. A trust structure is more complex than a sole trader or partnership set up, but is relatively common. The most common type of trust, a discretionary trust, is a trust in which the trust fund is held by a trustee and administered in accordance with the terms of a deed. The trustee’s job is to work out which of the beneficiaries will be apportioned a distribution of either capital or income from the trust in each financial year.

Using a trust structure allows you to reduce tax, by streaming distributions to beneficiaries on lower tax rates. It’s also a great way to reduce your liability as an asset holder.


It’s important that you pick the appropriate business structure for the new business you’re launching. It’s a good idea to have a discussion with a lawyer to make sure you’ve thought of all the issues. Your main goal should be to prepare for the future!


Everything You Need to Know about SaaS Agreements

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

Understand which contracts will protect your SaaS contract from risk, and how. Register for free today.
Register Now

What to Consider When Buying a Tech or Online Business

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

Learn how to get the best deal when buying a tech or online business. Register for our free webinar today.
Register Now

Corporate Governance 101: Responsibilities for New Directors

Wednesday 27 April | 11:00 - 11:45am

If you are a new company director, join our free webinar to understand your legal compliance obligations. Register today.
Register Now

Rogue Directors and Business Divorces: How to Remove a Director

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

Removing a board director is not simple. Join our free webinar to learn how to handle rogue directors. Register today.
Register Now

Employment Essentials for Tech Businesses

Thursday 5 May | 11:00 - 11:45am

Protect your tech business and your employees by understanding your employment legal obligations. Register for our free webinar today.
Register Now

How to Protect and Enforce Your Trade Mark

Wednesday 11 May | 11:00 - 11:45am

Protect your business’ brand from copycats and competitors. Register for this free webinar to learn how.
Register Now

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
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 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer