Choosing a business structure
The legal structure you choose for your business will affect how you register your business and will also have implications for tax.
A business can be legally structured in several ways and there are advantages and disadvantages for each.
We recommend seeking professional advice from your accountant, solicitor or financial adviser before deciding on your business structure, as you will need to consider many legal, financial and tax issues.
It is important to determine your business structure and associated tax obligations and type of business before you register a business or company as the steps may differ.
There are five main business structures for small business.
They are:
- Sole trader: an individual trading on their own
- Partnership: an association of people or entities carrying on a business together but not as a company
- Company: a legal entity separate from its shareholders
- Trust: an entity that holds property or income for the benefit of others
- Co-operative: democratic organisation, owned and controlled by its members for a shared benefit
Business Structures | |||||
Is the structure difficult to set up? | No | No | Yes | Yes | Yes Must have minimum of 5 people |
Is it expensive to register? | No | No | Yes | Yes | Yes |
Do I retain complete control? | Yes | No | No-shareholders can vote according to their shareholding | No | Yes – each member has same voting power |
Are there complex reporting requirements? | No | No | Small companies - simple reporting Large companies - more complex | Yes | Small co-ops – simple reporting Large co-ops – more complex |
Will my assets (house etc...) be under threat if my business goes into debt? | Yes | Yes | No, not unless you have guaranteed the business. | Not as likely | No, not unless you have guaranteed the business. |
Do I receive full profits made from the business? | Yes | No | Profits are shared according to shareholding | No | Profits shared amongst members |
Can I employ staff? | Yes | Yes | Yes | Yes | Yes |
Do I have to pay myself superannuation, workers comp etc...? | No | No | Yes | Yes |
Yes (if employed by the co-op) |
Can I change the legal structure easily? | Yes | No | No | No | No |
Do I have the ability to plan tax through avenues like income splitting? | No | Yes | Yes | Yes | Yes |
Is it easy to raise capital? | No | Yes | Yes | Yes | Yes |
Is it easy to dissolve or exit? | Yes | Yes | Yes | No | Yes |