Australia’s complex tax laws and regulations make it time-consuming and costly to choose a small business structure. Jigsaw Tax & Advisory can provide guidance and assistance in helping you choose the correct structure for your business. The choice of structure will depend on the size and type of business, your personal circumstances and how much you plan to grow your business in future. The type of business structure you choose can determine:
• Tax liabilities
• Responsibilities as a business owner
• Potential personal liability
• Asset protection
• Costs and record keeping requirements
• Succession and exit strategies
There are four commonly used structures by small business in Australia:
Sole trader: an individual trading on their own who controls and manages the business
Partnership: a group or association of people or entities running the business together
Company: a legal entity which is separate from its owners. A company is run by its directors an owned by its shareholders
Trust: an entity which holds property or income for the benefit of others. A trustee is legally responsible for the operation of the trust. A trustee can be an individual or a company. While a trust has similar legal protection to a company, it cannot retain earnings – all profits need to be distributed annually.
The following table outlines the key advantages and disadvantages of each particular structure:
| Business Structure | Sole Trader | Partnership | Company | Trust |
| Is the structure difficult to set up? | No | No | No | Yes |
| Is it expensive to register? | No | no | Yes | Yes |
| Do I retain complete control? | Yes | No | No | No |
| Are there complex reporting requirements? | No | No | Yes | Yes |
| Will my assets (house etc…) be under threat if my business goes into debt? | Yes | Yes | Not as likely | Not as likely |
| Do I receive full profits made from the business? | Yes | No | No | No |
| Can I employ staff? | Yes | Yes | Yes | Yes |
| Do I have to pay myself superannuation, workers comp etc.? | No | No | Yes (if employed by company) | Yes (if employed by company) |
| Can I change the legal structure easily? | Yes | No | No | No |
| Do I have the ability to plan tax through avenues like income splitting | No | Yes | Yes | Yes |
| Is it easy to raise capital? | No | Yes | Yes | Yes |
| Is it easy to dissolve or exit? | Yes | Yes | Yes | No |
