Why the company structure is most popular in Australia
Updated: 7 December 2019
There are 4 business structures to choose from in Australia, these are the sole trader, company, partnership and trust structures.
Amongst these, the company is by far the most popular in Australia followed by sole trader, partnership and finally trusts.
In fact, by the end of 2018, 38% of private businesses were companies in Australia.
So here are the official statistics for all business structures in Australia as at the end of 2018, courtesy of the Australian Bureau of Statistics.
Australian structures in 2018
Now, unlike the sole trader structure, companies are not the cheapest business structure to setup (we’ll cover costs below). So, why are companies popular in Australia ?
Here are some popular company features:
- Separate legal entity - a company is a separate legal entity. It can sue and be sued. Your personal assets are separate to the company assets so this provides founder’s peace of mind.
- Limited liability - your liability is limited to the company’s assets.
- Investor friendly - companies are particularly popular for businesses that are seeking investment. Shares can be allocated to investors easily.
Below I am going to cover some of the catch’s with the company structure so you are well informed.
What are the catches?
So we discussed the draw cards for the company structure above. What about the catches?
- Setup and running costs - expenses can sometimes be a deterrent.
- Corporations Act - there are rules, rules and more rules to comply with. So it's important so stay connected with a good advisor or read the ASIC website. e.g. to informed about changes you need to notify ASIC.
- Shareholder obligations - the shareholders own the company so you are accountable to them.
What are the costs of maintaining a company structure
There’s the initial setup fee that’s paid to ASIC, currently $488 and the service fee (if you pay either an accountant or lawyer to setup your company).
Also, there’s the ASIC annual renewal fee of $263.
There's also the annual income tax return fee. Fees can be around the $2,000 mark and higher, depending on complexity.
Legal costs include shareholder agreements, founder agreements where there is more than one director or one shareholder.
Can you change structures?
Can you change your business structure ?
In fact, it’s common for businesses to move from sole trader to the company structure to keep initial setup costs low.
Timing is going to be important for tax and legal reasons, so get advice first.
I wish you success in your ventures!