Choosing the right structure for your business is essential from a taxation and legal perspective.
How do you know which one is right for you?
The three most popular business structures are
- sole trader
Knowing the differences between these structures and choosing what’s best for your business can put you in the most favourable tax and legal position.
A sole trader is a simple business structure that gives you, the owner, all the decision-making power. You can also hire staff if you want to.
Business losses can be written off your PAYG tax from another job
A partnership is formed when two or more people (up to 20) go into business together. Partnerships can either be general or limited.
In South Australia, there is legislation called the Partnerships Act, which regulates partnerships.
A company has members (shareholders) who own the company, and directors who run it. However, if you’re an independent contractor you can set up a ‘one person company’ with a sole director and member. Companies can also be listed as public companies, meaning the public can buy shares to invest in the company.
The differences at a glance
|Simple business structure||Yes||No||No|
|Can be owned & run by one person?||Yes||No||Yes|
|High initial set-up fees?||No||Yes||Yes|
|Can hire staff?||Yes||Yes||Yes|
|Tax benefits?||Only when profits are low.
Enjoys tax-free threshold
|Yes, especially if partners are in the same family||Yes, but does not enjoy tax-free threshold|
|Relatively easy to attract capital?||No||No||Yes, because of limited liability|
|Relatively easy to operate globally?||No||No||Yes|
|Pay your own super?||Yes||Yes||Yes|
|Collective or personal responsibility for debts/losses||Personal||Collective||Personal if personal guarantee is undertaken|
|Relatively easy to close down?||Yes||No||No|