An important decision when starting a business is deciding on a business structure. There are several different business structures you can choose, and each will impact key areas such as the tax you pay, asset protection and the cost of set up. The four most common business structures in Australia are sole traders, companies, partnerships and trusts.
A sole trader is the simplest business structure and is relatively inexpensive to set up. While as a sole trader you have full control of your assets and business decisions you also have unlimited liability of all your personal assets if things go wrong.
A partnership is a business structure where two or more people carry on business with a common view of profit. In a partnership control and management of the business is shared however it is important to be aware that each partner is jointly liable with all other partners for any debts and obligations incurred by the business. Partners do not pay tax on the income earned but rather each partner pays tax on their share of the income they receive.
The key defining feature of a company is that it enjoys separate legal personality. This means that a company can sue and be sued, if a company is wronged by another party it is the company itself that is the proper plaintiff and not the members or directors. A company is also a more complex business structure to start and operate and the set-up costs are higher than sole traders and partnerships. Business operations are controlled by directors who owe specific duties to the company.
A trust is an institution in which a trustee holds property or assets for the benefit of others, the beneficiaries. In a business trust the trustee is legally responsible for its operations and owes a range of obligations to the beneficiaries. Some of these duties mirror those owed by a director of a company. A trust can be expensive to set-up and operate and requires a formal trust deed that outlines how the trust operates. If you are seeking legal advice on business structures, please feel free to get in contact with one of our experienced commercial lawyers at Frank Law on (02) 9688 6023.
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This is not legal advice.