Reading time: 4 minutes

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.

onlinebusiness_coverThis 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.

Webinars

COVID-19 Vaccines In The Workplace

Thursday 10 February | 11:00 - 11:45am

Online
Can you compel employees to have a COVID-19 vaccine? Understand your rights and responsibilities as an employer. Register today for our free webinar.
Register Now

Preventing Wage Underpayment In Your Franchise

Wednesday 16 February | 11:00 - 11:45am

Online
Learn how to identify and prevent wage underpayment in your franchise. Register today for our free webinar.
Register Now

How to Prevent and Manage Commercial Contract Disputes

Thursday 24 February | 11:00 - 11:45am

Online
Learn how to prevent and manage common commercial contract disputes. Register today for our free webinar.
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? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, 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