Choosing the right Business Structure

Introduction

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
  • partnership
  • company

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.

Sole trader

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

Partnership

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.

Company

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

Sole Trader Partnership Company
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

 

 

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