Business and commercial
Choosing and setting up a business structure
The structure you trade through decides who is liable for the debts, who controls decisions, how owners can exit, and how easily the business can be sold or passed on. Sole trader, partnership, company and trust each answer those questions differently. The right choice depends on your circumstances, and the legal and tax questions need to be answered together.
Conflict clearance and written engagement are required before the firm acts.Quick answer
What business structure should I use in Australia?
There is no single right answer. A sole trader is simplest but carries unlimited personal liability. A partnership shares liability between partners, usually jointly and severally. A company is a separate legal entity with limited liability, but directors carry duties and some personal exposure. A trust separates control from benefit and can suit family businesses. The choice should be made with both legal and accounting advice before you start trading.
- A sole trader carries unlimited personal liability for business debts.
- Partners are generally liable jointly and severally for partnership debts.
- A company is a separate legal entity, but directors owe duties under the Corporations Act 2001 (Cth).
- A trust separates who controls the business from who benefits from it.
- Structure affects how owners exit, how the business is sold, and what happens on death or incapacity.
- Legal and tax questions should be answered together, not in sequence.
Jurisdiction: Western Australia.
The four questions a structure answers
Most people choose a structure by asking what it costs to set up. That is the least important question. A structure is really an answer to four others: who is personally liable if the business cannot pay its debts, who makes decisions and how disputes between owners are resolved, how an owner gets out and what their interest is worth, and what happens if an owner dies or loses capacity. A structure that answers those badly is expensive later in ways that dwarf the setup cost.
Sole trader
The simplest structure and the one with the least protection. You and the business are the same legal person, which means business debts are your debts and business liabilities can reach your personal assets, including the family home. It suits low-risk, low-asset activity and businesses being tested before commitment. It becomes a poor fit as soon as the business takes on employees, significant contracts, a lease, or borrowing.
Partnership
Two or more people trading together without incorporating. Partners are generally liable jointly and severally for partnership debts, which means a creditor can pursue any one partner for the whole amount, not just their share. Most partnership disputes we see trace back to the absence of a written agreement, or one written for a different business years earlier. In Western Australia the partnership's structure also affects which industrial relations system covers its employees.
Company
A proprietary limited company is a separate legal entity that can own property, contract and sue in its own name. Liability for company debts is generally limited to the company, which is the main reason people incorporate. That protection is not absolute. Directors owe duties under the Corporations Act 2001 (Cth), can be personally exposed where those duties are breached or where trading continues while insolvent, and are routinely asked to give personal guarantees for leases and finance - which puts personal assets back on the table by contract rather than by law.
Trust
A trust separates legal control from beneficial entitlement: a trustee holds and runs the business for beneficiaries. Discretionary family trusts are common in family businesses because they allow flexibility about who benefits. The trade-offs are complexity, the cost of getting the deed right, and the fact that the trustee - often a company - carries the liability. Trust deeds are not interchangeable, and the deed governs what can and cannot be done, so it needs to be read before decisions are made on the strength of general advice.
Where legal and tax advice meet
Structure decisions have tax consequences we do not advise on. We work alongside your accountant rather than in place of them, because the legal answer and the tax answer sometimes point in different directions and the decision has to reconcile both. If you do not have an accountant, get one before you commit to a structure - restructuring later can trigger duty and tax consequences that make the original saving irrelevant.
Restructuring an existing business
Moving from sole trader to company, or interposing a trust, is not simply a registration. Contracts, leases, licences, employees, finance, insurance and the business name all need to move with it, and each of those has a mechanism. A restructure that registers the new entity but leaves the lease and the contracts behind creates a business trading through one entity while its obligations sit in another - which is precisely the exposure the restructure was meant to remove.
Process
- 1
We discuss the business, its risks, who is involved and what each person expects to get out of it.
- 2
We set out what each structure would mean for liability, control, exit and succession in your circumstances.
- 3
We coordinate with your accountant so the legal and tax positions are decided together.
- 4
We prepare or review the constituent documents - company constitution, partnership agreement, trust deed or shareholders agreement.
- 5
We deal with the practical transfer of contracts, leases, licences and employees where a restructure is involved.
- 6
We identify what should be reviewed again as the business grows.
What to prepare
- Details of the business, what it does and where.
- Who is involved, and what each person contributes and expects.
- Any existing registrations - ABN, business name, ACN.
- Existing agreements between the owners, however informal.
- Leases, finance documents and major contracts.
- Your accountant's details.
- Any existing trust deed or company constitution.
Risks, deadlines and common mistakes
- Choosing a structure on setup cost alone, and paying for it at exit or on a dispute.
- Assuming a company protects personal assets while signing personal guarantees that do the opposite.
- Trading through a structure without the agreement between owners that governs disputes and exits.
- Restructuring the entity without moving the contracts, leases and licences with it.
- Deciding structure without tax advice, then discovering the change is expensive to undo.
Fees and scope
Structuring advice is quoted after an initial consultation, once we know what the business does, who is involved and whether documents need to be drafted or only reviewed. Registration and government fees are separate and confirmed at the time. Where accounting input is needed we will say so rather than guess at it.
COMMON QUESTIONS
Frequently asked questions
Should I set up a company or stay a sole trader?+
It depends on the risk the business carries, whether it will have employees, contracts or a lease, and what the owners want on exit. A company gives separation between business and personal liability that a sole trader does not, at the cost of more compliance. The decision should be made with tax advice alongside.
Does a company always protect my personal assets?+
No. Limited liability is the general position, but directors owe duties under the Corporations Act 2001 (Cth), can be exposed for breaches and for insolvent trading, and are usually asked to give personal guarantees for leases and finance. Those guarantees put personal assets back at risk by contract.
What is the risk in a partnership?+
Partners are generally liable jointly and severally for partnership debts, meaning a creditor can pursue one partner for the whole debt. A written partnership agreement does not change that exposure to outsiders, but it governs what happens between the partners, which is where most disputes actually arise.
Is a family trust worth the complexity?+
Sometimes. A trust separates control from benefit, which suits family businesses and succession planning, but it costs more to establish and administer, and the deed governs what is possible. It is worth it where the flexibility is actually used, and not where it simply adds cost.
Can I change structure later?+
Yes, but it is a transfer rather than a switch. Contracts, leases, licences, employees and finance all need to move, and there can be duty and tax consequences. It is cheaper to get it close to right at the start than to unwind it.
Do you give tax advice on structures?+
No. We advise on the legal consequences - liability, control, exit and succession - and work alongside your accountant on the tax side, because the two need to be decided together.
What documents should exist between the owners?+
A partnership agreement, or a shareholders agreement for a company, dealing with decision-making, what happens if an owner wants out, what happens on death or incapacity, and how a dispute is resolved. Most businesses do not have one until they need it.
Can we discuss this in Vietnamese?+
Yes. This page has a full Vietnamese version and the work is carried out by lawyers who speak English and Vietnamese.