- 1There is no single best structure — the right choice depends on risk, tax, asset protection and growth plans.
- 2Companies and trusts are commonly combined, for example a company acting as trustee of a discretionary trust.
- 3Structure decisions should be made with your accountant and lawyer together, before you start trading.
The main options
Most Australian businesses operate through one of four structures, or a combination of them:
- ✓Sole trader: simple and inexpensive, but the owner is personally liable for all business debts.
- ✓Partnership: two or more people carrying on business together; partners are generally jointly liable for partnership debts.
- ✓Company: a separate legal entity registered with ASIC. Shareholders' liability is generally limited to any unpaid amount on their shares, although directors have duties and can become personally liable in some circumstances.
- ✓Trust: a relationship in which a trustee holds assets for beneficiaries. Trusts are commonly used for asset protection and flexible distribution of income, and a company is commonly appointed as the trustee.
How the structures compare
Liability is the first consideration. Operating through a company, or a trust with a corporate trustee, can separate business risk from personal assets — although lenders and landlords frequently ask directors for personal guarantees, which reduce that separation.
Tax treatment differs between structures. Companies pay tax at the corporate rate, while trusts can distribute income to beneficiaries, who are taxed at their own rates. These rules are complex and change over time, which is why we work alongside your accountant on the tax side of every structuring decision.
Growth plans matter too. A company with a clear share structure is generally easier for investors to buy into, and easier to sell, than a trust. Unit trusts can suit situations where investors need fixed, defined interests.
| Sole trader | Partnership | Company | Trust | |
|---|---|---|---|---|
| Separate legal entity | No | No | Yes | No (trustee acts) |
| Owner liability | Unlimited | Generally joint and unlimited | Generally limited to shares | Depends on the trustee — commonly a company |
| Set-up & running cost | Lowest | Low | Moderate | Moderate to higher |
| Income distribution | Taxed to owner | Split per partnership agreement | Company rate; dividends | Flexible (discretionary trusts) |
| Ease of bringing in investors | Low | Moderate | High | Moderate (unit trusts) |
Asset protection and succession
Separating the trading business from valuable assets — such as property, equipment or intellectual property — can reduce the exposure of those assets if the trading entity runs into trouble. A common approach is to hold assets in one entity and run the business in another, with a documented arrangement between them.
Structures also need to work with your estate plan. Assets held in a company or trust do not necessarily pass under your will in the way assets you own personally do, so control of the trustee or the shares should be planned for as part of your succession arrangements.
Getting the documents right
Once a structure is chosen, the documents need to match: a constitution for the company, a trust deed for the trust, and, where there are several owners, a shareholders' or unitholders' agreement. Poorly drafted or outdated deeds can undermine the benefits the structure was chosen for.
Existing businesses can be restructured, but moving assets between entities may trigger tax and duty consequences. Advice before any change is essential.
Common questions
Can I change my business structure later?+
Yes, but moving assets or a business from one entity to another can have tax and stamp duty consequences. It is simpler and cheaper to choose the right structure before you start trading.
Does a company protect me from all personal liability?+
Not entirely. Directors have legal duties, can be personally liable for certain company debts in some circumstances, and are regularly asked to give personal guarantees to lenders and landlords.
Sources & further reading
- ↗business.gov.au — choosing a business structure
- ↗ASIC — Australian Securities & Investments Commission — registering a company
- ↗Australian Taxation Office — tax for companies and trusts
This guide is general information about Queensland and Australian law and is not legal advice. Laws change and every situation is different — speak with us about your specific circumstances before acting.
