Choosing the right business structure is one of the most important decisions you’ll make when starting a business in New South Wales. It affects everything from how you’re taxed to your personal liability, ability to raise capital, and the way you manage risk.
Below, we explain the four main business structure types in Australia — sole trader, partnership, company, and trust — so you can make an informed choice that supports your goals from day one.
Table of Contents
1. Sole Trader: Simple Setup, Full Control – But Higher Risk
A sole trader is the easiest and least expensive structure to set up in Australia. You operate the business under your own name (or a registered business name), and you’re legally responsible for all of the debts and obligations of the business..
Summary: Best for individuals starting small with minimal risk exposure.
Pros:
- Quick and low-cost to establish
- Full control of decision-making and profits
- Fewer reporting obligations
Cons:
- No separation between business and personal assets
- You’re Unlimited personal liability for business debts and obligations
💡 Ideal for freelancers, tradespeople, and solo entrepreneurs testing a business idea.
2. Partnership: Shared Ownership, Shared Risk
A partnership involves two or more people running a business together, typically under a written partnership agreement, though not legally required. Each partner shares in profits — and liabilities.
Summary: Great for collaborative ventures, but requires strong communication and clear agreements.
Pros:
- Simple and cost-effective to start
- Combined skills, resources, and capital
- Shared responsibilities
Cons:
- Partners are jointly and severally liable for partnership debts and obligations.
- Potential for disagreements without a formal agreement
- Profits and losses are shared according to the partnership agreement or, if no agreement, equally.
💡 Best for professionals or family members going into business together with trust and aligned goals.
3. Company: Separate Legal Entity with Limited Liability
A company is a more complex structure, regulated by ASIC (Australian Securities and Investors Commission). It is a separate legal entity from its owners (the company shareholders), offering some protection from personal liability. The Company directors, however, may be personally liable in certain circumstances (e.g., insolvent trading, breaches of directors’ duties)
Summary: Suitable for growing businesses, those seeking investment, or owners looking to limit risk.
Pros:
- Limited liability for directors (liability can arise in certain circumstances) and shareholders
- Greater credibility with clients and investors
- Easier to raise funds or bring in new directors
Cons:
- Higher setup and compliance costs
- More paperwork and increased regulatory compliance obligations
- Director duties carry legal responsibilities
💡 Ideal for businesses with growth plans, external investment needs, or risk exposure.
4. Trust: Strong Asset Protection with Long-Term Flexibility
A trust is not a separate legal entity, and is a structure where a trustee holds and manages assets on behalf of beneficiaries, in accordance with the terms of a trust deed. Trusts can be discretionary or fixed and are often used for asset protection, income distribution, and tax minimisation. Trusts are often established with a corporate trustee for additional asset protection.
Summary: Suitable for complex family business structures or those seeking advanced tax planning.
Pros:
- Offers strong asset protection
- Flexible income distribution options
- Potential tax advantages when structured correctly
Cons:
- Complex and costly to establish and maintain
- Must comply with strict legal and reporting obligations
- Often requires professional legal and accounting support
💡 Best suited to family-run businesses, investment ventures, or high-value asset holders.
How to Choose the Right Business Structure
There’s no one-size-fits-all answer — the best structure depends on your current needs and future plans. Ask yourself:
- Will I be running the business alone or with others?
- Do I want to limit personal liability?
- How important is tax efficiency or asset protection?
- Do I plan to scale, take on investors, or sell the business?
- Am I looking for simplicity or long-term flexibility?
Even a small mistake at setup can result in higher taxes, legal risk, or restructuring costs later. That’s why it’s It is strongly recommended to seek professional legal and accounting advice before registering your business.
Need Help Choosing the Right Legal Structure? We Can Help.
Setting up your business with the right structure gives you clarity, protection, and confidence moving forward. Our experienced commercial and business lawyers in NSW can help you:
- Understand your options and obligations
- Choose the most suitable structure for your goals
- Register your business and draft key legal documents
Conclusion & Next Steps
The information contained in this article is general in nature and does not constitute legal or financial advice. Readers should seek professional advice tailored to their individual circumstances before making any decisions regarding business structures.
Helpful Resources & Links
Australian Securities and Investments Commission (ASIC)
The information contained in this article is general in nature and does not constitute legal or financial advice. Readers should seek professional advice tailored to their individual circumstances before making any decisions regarding business structures.