Choosing a Business Structure: Guide to Setting Up Shop

Starting a new business can be exciting! But before you launch your amazing idea into the world, it's important to lay the right foundations. That's where choosing the right business structure comes in.

Think of your business structure as the framework that supports everything you do. It can influence things like how you pay taxes, your legal responsibilities, and even how much paperwork you'll be tackling.

In this guide, we'll walk you through some of the common business structures in Australia, including sole trader, partnership, company, and trust structures, to help you make an informed decision for your unique venture.

Before diving into the different types of business structures, let's get clear on the fundamentals.

In simple terms, a business structure is the framework you choose to operate your business under. It can determine how your business is taxed, your personal liability, and other important aspects.

Choosing the right business structure isn't a one-size-fits-all situation. Here are a few key factors to consider:

• Liability: Do you want to keep your personal assets separate from your business liabilities (limited liability) or are you comfortable with being personally responsible for business debts (unlimited liability)?
• Tax Implications: Different structures have different tax implications. Some structures may allow you to take advantage of certain tax benefits.
• Administrative Burden: Some structures require more paperwork and compliance than others.
• Future Plans for Growth and Expansion: Your chosen structure should be able to accommodate your business goals, both now and in the future.

Choosing the right business structure can be a significant decision with long-term implications for your venture. While online resources can be helpful for initial research, it can be invaluable to seek personalised guidance.

• Accountants: Can provide insights into the tax implications of each structure, helping you optimise your financial strategy.
• Solicitors: Can guide you through the legal requirements of setting up and running your chosen structure, and help ensure compliance.

Investing in professional advice upfront could help save you time, money, and potential headaches down the road. Think of it as laying a strong, well-informed foundation for your business success.

Let's explore some of the common business structures in Australia:

• Explanation: A sole trader structure is the simplest form of business. You and your business are considered one entity.
• Pros: Easy and inexpensive to set up, minimal paperwork, you have complete control over your business, and all profits are yours.
• Cons: Unlimited liability (you're personally responsible for business debts), may be harder to raise capital, and business could end if you stop working.
• Example: An artist selling their paintings online as a sole trader.

• Explanation: A partnership involves two or more people who carry on a business together.
• Pros: Shared responsibility and workload, potentially more resources, relatively easy to set up, combined skills and knowledge.
• Cons: Unlimited liability (unless a limited partnership), potential for disagreements, profits are shared, decisions may require compromise.
• Example: Two friends who start an online dress boutique as a partnership.

• Explanation: A company is a separate legal entity from its owners (shareholders).
• Pros: Limited liability, easier to raise capital, business can continue even if shareholders change.
• Cons: More complex to set up and manage, ongoing compliance requirements, can be more expensive to set up.
• Example: An online electronics seller that has grown into a larger business and wants to limit liability.

• Explanation: A trust is a structure where a trustee (an individual or company) holds assets or income for the benefit of beneficiaries.
• Pros: Potential tax advantages, asset protection, can be flexible for complex family or business situations.
• Cons: Complex to set up and administer, may require specialist advice, can be expensive to set up and maintain, strict rules and regulations.
• Example: An artist who sets up a trust to manage their art sales and protect their assets.

Choosing the right business structure could have an impact on how your business operates, from obligations to administrative tasks. Below is a summary of the pros and cons of some common business structures:

While it's great to do your own research, sometimes you need an expert in your corner. Choosing a business structure is a big decision, and getting it right from the start can help save you headaches down the track.

If you're feeling unsure about which structure is right for you, or if your business has complex needs, don't hesitate to reach out to the professionals.

Here are a few scenarios where expert advice is particularly valuable:
• You're unsure which structure offers the best advantages for your situation.
• You're concerned about personal liability and asset protection.
• Your business involves multiple partners or complex ownership arrangements.
• You're planning for significant growth or expansion in the future.

Accountants and solicitors can provide tailored advice to help you:

• Choose the right structure: They could consider your specific circumstances, goals, and risk tolerance to recommend the most suitable structure.
• Meet obligations: They could ensure you understand your responsibilities and comply with all relevant regulations.
• Maximise business efficiency: They could help you streamline your processes, saving you time and money in the long run.

Choosing the right business structure can be a fundamental step in your entrepreneurial journey. It's not a decision to be taken lightly, as it could impact your legal obligations, tax liabilities, and overall business operations.

Remember, there's no one-size-fits-all answer. The best structure for you will depend on your unique circumstances, goals, and risk tolerance. Take the time to carefully consider your options, weigh the pros and cons, and don't hesitate to seek professional advice from an accountant or solicitor.

As you plan for your business's future, consider the power of reaching new customers online. Many Australian businesses have found success by offering their products to Amazon's amazing customers, opening up new avenues for growth and visibility. Check out our Seller Spotlight Blog to hear their experiences firsthand.