Whenever people start a business, they need to determine which structure to use. The commonly used structures are partnerships, companies and sole traders.

Sole traders

A sole trader is generally the simplest option whereby a person trades under their own name. However, there are major disadvantages, as a sole trader is legally responsible for all aspects of a business. Any assets owned by the individual sole trader are at risk if there are any issues or claims made against the business, as the sole trader is the owner of the business.

This is often the most common way that small businesses start out; however, other structures can be much more advantageous in terms of limiting liability and protection of personal assets.


A partnership is an association between two or more people who wish to carry on a business in common with a view to generating a profit.

The main disadvantage of partnerships is the fact that partners can be liable for the debts of the partnership, which is the case for typical partnerships. Therefore, personal assets can be at risk.

Other forms of partnership include limited partnerships and incorporated limited partnerships.

A limited partnership has general partners and limited partners. General partners manage the business, while limited partners do not play an active role. Limited partners’ liability is limited to their monetary contribution whereas general partners liability is unlimited. Therefore, there is significant potential risk for general partners in terms of their personal assets and risk for limited partners where they cannot cover a potential liability up to their monetary contribution.

An incorporated limited partnership can include four types of partnerships, which are structures used for venture capital purposes. These include a Venture Capital Limited Partnership, an Early Stage Venture Capital Partnership, and Australian Venture Capital Fund of Funds and a Venture Capital Management Partnership.

It is always important to have a Partnership Agreement to set out the type of partnership (e.g. normal partnership or limited partnership), the partners’ details, their responsibilities, rights and obligations, monetary contribution to the business and how profits and losses of the partnership are divided.


A company is a separate legal entity that can trade on behalf of a business, enter into contracts with third parties, employ employees, owns all assets and is responsible for the liabilities of the business.

An owner of a company is a shareholder and is usually appointed as a director of the company where that shareholder owns a substantial amount of shares in the business.

The main advantage is the fact a company has limited liability, and its shareholders are not liable for its contracts and torts, apart from amounts unpaid on their shares. Individual directors will not be personally liable (unless there are some exceptional circumstances such as a breach of directors duties).

It is always important to have a Shareholders Agreement to set out the rights and obligations of the shareholders of the company.

Although a lot of small businesses tend to start a business with a sole trader structure, it is usually advisable to incorporate a company from the outset, which will own the assets of the business. This provides the owner (or shareholder of the company) with some protection from potential liability in respect of their personal assets. It also allows room to grow if capital is required from outside equity investors who may invest in the company for a proportion of the shares in the company.


LegalVision has lawyers that specialise in business structures and can advise you as to which structures might be more appropriate for your start-up business, as well as draft the relevant partnership agreements or shareholders’ agreement (for companies).

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

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.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy