What business structures are available and what’s the difference between them?

There are four main structures for the formation of a business; Sole Trader, Partnership, Company and Trust

  • A Sole Trader is simply a person with an ABN. Any business income and expense will be reported via the personal tax return. As a sole trader, your personal assets will be subject to the risk from the business
  • Partnership is generally used when two or more business partners join together for business. A Partnership is not a legal entity, therefore, all the profit or loss will flow through to each partner. Tax will be paid on each partner’s level. All partners in the partnership will be jointly liable for any business liability of the partnership
  • Company is an independent legal entity which is able to own its own assets and pay its own tax. Shareholders are the owners of the company and directors are responsible for running the company. Generally a company has limited liability, therefore, any business risk will be capped at the company level, i.e. shareholder will not be exposed to the business risk of the company. A director of a company will generally not be subject to any risk as long as they do not breach their duties of directorship.
  • Trust is a slightly more complex structure, where the trustee of a trust bares all the business risk of a trust. The Trust itself is not able to retain profit, therefore, all the profit will need to be distributed to beneficiaries and the tax is paid on the beneficiary level. However, if the Trust has a loss, the loss will be kept in the trust and carried forward to offset any future profit.

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