Business structures in Australia

By Vivian Michael | Business Structures

Business structures in Australia

Photo by Laura Cros on Unsplash

Ever wondered which business structures are popular in Australia? and how they work? (and no, I am not talking about the physical structures you can see in the picture above!). 

There are 4 main business structures in Australia, these are 1) sole trader 2) company 3) partnership and 4) trust.

Below I’ll give you a guide of recent business structure trends and key features of each structure. 

And, before we get into the numbers...

The numbers we're discussing below are the most recent Australia-wide statistics from the 2017 Australian Bureau of Statistics.

In 2017 there were 2.2 million actively trading businesses in Australia.

In fact, in 2017, the number of actively trading businesses in Australia increased from 2016 by 3%, that’s 67,000 more businesses than 2016.

So which industries make up the growth?

Well, 24% of that growth was due to more actively trading businesses in the transport, postal and warehousing industries which increased by 12% or 16,000 from 2016.

While in 2017, 328,205 businesses entered the market, an increase of 5.7% from 2016; there was also an increase in the number of businesses leaving the market; 310,435, an increase of 0.5% from 2016.

The overall trend is there are more actively trading businesses, and more are entering the market than there are leaving the Australia as shown below.

Entry and exit of actively trading businesses

So, with all these businesses entering the market, which structures are they using?

Business structure trends 

In 2017, the company structure saw the largest increase in number; 35,307 businesses or 4.4% more than 2016.

Sole traders had the largest percentage increase - up 25,521 businesses or 4.5%.

In fact, partnerships were the only business that were not as popular in 2017 with numbers down from 2016 by 8,861 or 3.2%.

Why the company and sole trader options are popular?

So why are company and the sole trader structure popular? First, we’ll start with the sole trader structure.

Sole trader 

Who is using the sole trader structure?

All sorts of people use the sole trader structure.

Everyone from freelancer graphic designers, web developers, consultants through to to tradies like plumbers, carpenters and electricians, all choose the sole trader structure. 

Why use the sole trader structure?

The sole trader structure is simple to set-up and costs very little to set up.

You simply apply for an Australian Business Number (ABN) to set it up.

Now, as a sole trader, you are personally liable and there is no separation between your personal assets and the business’s assets - they are one and the same, unlike the company structure.

Company 

On the other hand, a company does allow a separation between your assets and the business’s assets.

You are liable to the value of your company assets only. 

Why?

Because a company has its own legal personality, it can sue and be sued.  

Also, you can allocate shares to shareholders.

And, for these reasons, the company structure is quite popular amongst Australian startups taking risks and bringing investors on board.

What does it cost to setup a company ?

There is the initial ASIC registration which is $488 at the time of writing. If a lawyer or accountant registers your company, you’ll need to pay them a service fee.

Also, there is an annual renewal fee which you pay to ASIC, currently $263.

And then there’s income tax preparation, while fees can vary, $2,200 is a good indicator for suburban accountants, at least.

Partnership 

A partnership is a group of people carrying on a business together.

You would pick this structure if you are working with up to 20 others, are not worried on brining investors on board through share allocation.

Also, you can choose from a general or limited partnership.

The legislation for partnerships varies for each state and territory in Australia.

Finally, the partnership structure is not popular for startups, or generally for that matter, a reminder - this structure type decreased in 2017.

What’s involved in setting up a partnership?

A partnership is fairly simple to set up and inexpensive.

You’ll need a separate tax file number (TFN) and an ABN to use for all business dealings. 

Similar to the sole trader entity, you and your business partners are personally liable for the business debts. Each partner pays tax on the share of net income they each receive.

Each year a partnership tax return needs to be lodged.

And, each partner is responsible for their own superannuation as they aren’t employees. 

Trust 

Finally, a trust is an entity that holds property or income for the benefit of others.

Trusts can be expensive to setup. Setup costs include a trust deed, there are formal yearly administrative tasks and if you operate your business as a trust, the trustee is legally responsible for its operations.

A trustee of a trust can be a company, providing some asset protection.

Business name and GST 

In Australia, to run your business, you can register for a business name as well, but make no mistake, a business name is not a seperate legal entity. 

And, a business name is just that - a name.

Also, registering a business name does not provide instant protection for your intellectual property - you may wish to speak to an IP lawyer about that.

Regardless of your business structure, you’ll need to be registered for GST if your annual turnover is $75,000 or more each year.

And, if you provide taxi or limousine travel for passengers (including ride-sourcing) in exchange for fares, you will need to be registered for GST regardless of  your turnover.

I wish you every success in your business ventures. As always, get advice if you are in doubt! 





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About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to entrepreneurs launching in Australia that would otherwise DIY, rely on legacy contracts or go without.

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