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When choosing a legal structure for your business you need to consider a range of issues. Each structure has its own advantages and disadvantages, so consult professional advisers before making the choice.
Regardless of the business structure you choose, you may also decide to trade under a business name.
Sole ownership is appropriate where a business is small and capital investment is minimal. Sole traders have total control of the business management, the assets and the profits. It is the simplest business structure that you can choose, and is relatively inexpensive.
Find out more about being a sole trader.
A partnership is an agreement between two or more people to carry on a business together for profit.
Partnerships are appropriate where a small number of people are involved and the risks are minor. The upper limit on the number of people involved is usually 20.
The rights and obligations of partners are defined by the Partnership Act 1891. Unless there is an agreement stating otherwise, all partners are equally entitled to share the capital and profits and must also equally bear responsibility for losses and debts incurred.
Find out more about operating a partnership.
A proprietary company is a legal entity that is separate from you and any others who own and manage the business.
A company can have assets and liabilities and make profits and losses quite separately from its shareholders.
It can also acquire and sell property, take legal action and sign documents.
A company must have at least one shareholder and it may have more than one director. Shareholders may also be directors and company secretaries. Residency laws apply – normally at least one director is an Australian resident.
A company can be formed by one or more people, who must be over the age of 18.
People who are undischarged bankrupts or have been convicted of company-related offences are barred from forming a company. People who have committed any breaches of corporate law should see a solicitor before considering whether to form or enter a new company. There are serious penalties for ignoring these rules.
Find out more about operating a company.
A trust exists when one person, a group, a family or an organisation are the legal owners of property or assets for the benefit of others.
A trust is often chosen as the structure for a business when more than one family is involved in running the business. In this situation, a trust is formed when a business is transferred to a trustee to:
- hold the assets
- run the business
- distribute income to beneficiaries
- observe the provisions in the trust deed.
Trustees are the legal custodians of trust property and obliged to hold the property for the benefit of the nominated beneficiaries. Trustees are bound by the Trustee Act 1936.
In general, the types of trusts permitted by law are:
- trusts for people
- trusts for charitable purposes
- trusts for a limited set of non-charitable purposes – eg establishing monuments.
No particular forms are used to create a trust and procedures are simple to follow.
Find out more about operating a trust.
Changing your business structure
You aren’t locked into a business structure for the life of your business. As your business grows and changes, you need to ensure you manage these changes successfully. Find out more about changing your business structure.