This chapter is an extract from LegalVision’s Online Business Manual. Download the full guide here.
Before launching an online business, you’ll need to decide what business structure you’re going to operate under.
The structure you choose will significantly affect your business’ legal and operational risk, asset protection, tax obligations, legal costs and clientele.
There are four common business structures in Australia:
You should think carefully early on about which structure is right for your online business and best reflects your goals for the future. Although you can change your business structure to accommodate the growth of your online business, it can be a costly process.
Choosing The Right Business Structure
Choosing the right structure for your business depends on a number of factors including cost, risk management and tax planning. The table below summarises how each structure stacks up against these factors. Please obtain tax advice to assist you to decide your business structure.
Most small businesses in Australia are set up as sole traders. A sole trader can work well for simple businesses without significant growth plans. However, the structure is not very flexible and doesn’t allow the business to have more than one owner.
Business owners can choose to set up their online business as a partnership or trust, and these structures do have certain advantages. But starting an online business can be risky. We recommend that you use a company structure to limit your personal liability and for tax planning.
Business Structure Options
| Cost to Establish | Risk of Liability | Tax | |
| Company | High — you must register a TFN, ABN and GST/PAYG if applicable, establish a new company with ASIC and draft a shareholders agreement. | Limited liability — if the company goes out of business, the company’s shareholders are not personally responsible for the business’ debts.Company directors have directors’ duties, and may be personally liable for a breach of duties. |
A company can retain profits, while paying the company tax rate (30% for larger companies, and 27.5% for smaller companies). |
| Sole Trader | Low — you must set up an ABN and register for GST/PAYG if applicable. | You are personally liable for any debts the business incurs. | Profits will be taxed at the sole trader’s marginal tax rate. |
| Partnership | Low — you must register a TFN and ABN, as well as GST/ PAYG if applicable, and draft a partnership agreement. | Partners are jointly and severally liable for the partnership’s debts. | All profits from a partnership structure will be taxed at each individual partner’s marginal tax rate. |
| Trust | High — you must register a TFN and ABN, GST/PAYG if applicable, choose a trustee (this may involve incorporating a corporate trustee), create the trust deed and settle the trust. | If a trust has an individual trustee, the trustee will be personally liable for the trust’s debts. If a trust has a corporate trustee, the company’s shareholders will be protected by the company’s limited liability. |
Income that is distributed to trust beneficiaries is taxed at each beneficiary’s marginal tax rate. Income that the trust holds is taxed at the highest marginal rate. |
If you have any questions about your customers, your competitors or your business model before you continue reading, you can contact LegalVision’s online business lawyers by calling 1300 544 755 or filling out the form on this page.
This chapter is an extract from LegalVision’s Online Business Manual. Download the free 53-page manual which includes all chapters and features case studies from NAB, Deliveroo, Airtasker and HubSpot.
This manual covers all the essential topics you need to know about starting your online business, including setting up your online business, protecting your brand, growing your team and scaling your business.
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