There are five main business structures in Australia but how do you know which one is right for you? It’s important to take into consideration any costs and legal obligations that come with a business structure.
Here’s the GLG Legal guide to the types of businesses you can own and how they operate.
A sole trader is someone who runs a business on their own behalf, and it can trade under their actual name or a registered business name. Sole traders are taxed at the same rate as an individual taxpayer. It’s probably the simplest form of business structure, with low establishment costs, and few legal requirements. However, the major disadvantage to being a sole trader is that you are personally liable for all obligations incurred while running the business.
Two or more people can form a business partnership, where income is received by everyone involved. Partnerships are not expensive to set up and operate, and most are governed by a “partnership agreement”, a legal document which establishes the rights and obligations of each partner. While the partnership itself is not taxable, each partner will pay tax on their share of the business’ net income. It’s important to remember partners are jointly legally liable for all partnership obligations. And there is the potential for disputes and disagreements between partners.
A business run as a company is a separate legal entity capable of holding assets in its own name. A company is owned by shareholders, who receive any company profits as dividends. Companies come under Australian Corporations Law, and company directors have a range of duties and obligations. Directors must act in the best interests of the company. There are ongoing compliance costs associated with running a company and you must be able to publicly disclose key information.
Under a Trust business structure, a trustee owns the property or assets of the Trust, and carries out the business on behalf of the beneficiaries of the Trust. Trustees can be an individual person, or a company. There are formal legal requirements to set up a Trust and administering a Trust can be complicated and expensive. However, the advantage is there’s flexibility in distributing any income and assets can be protected.
An incorporated association is an organisation under state or territory law, that is usually not-for-profit. Its structure establishes it as a legal entity separate from its individual members. To incorporate an association in Queensland, you must:
- Be a group with at least seven members.
- Be a not-for-profit association.
- Have a physical address in Queensland.
Incorporated associations must comply with legislative requirements and must lodge an annual return, as well as audited and/or verified financial statements.
Talk to the experts here at GLG Legal to ensure your business structure is right for you and your future.