Commercial Lawyer Brisbane
Business Structures
Choosing the Right Structure for your Business
Business structures are the legal status of a company’s organisation and operations. Choosing the right business structure is essential when starting a new business, because the choice can have important implications for tax obligations, legal and operational risk, personal liability, asset protection and licences required.
Business structures are separated into four different categories: sole trader, partnership, company structure and trust.
Sole Trader
Directors who set up a sole trader business manage and operate the business under their own name. Sole traders are legally responsible for debts and losses and day-to-day business decisions – essentially all aspects of the business. Sole traders may include small businesses, tradespeople and online stores.
A sole trader is recognised as typically the simplest and cheapest business structure because not only do all powers and responsibilities fall on the director, but the structure also allows directors to use their individual tax file number to lodge tax returns and does not require a separate business bank account. However, sole traders are personally liable to pay tax on all the income derived and cannot split business profits or losses made with family members.
Partnership
A partnership is a business structure where income or losses are distributed amongst two or more people. Much like sole traders, a partnership structure is recognised as relatively easy and inexpensive to set up and has minimal reporting requirements. Partnerships are further divided into three separate categories – General Partnerships, Limited Partnerships and Incorporated Partnerships.
It is recommended that a partnership includes a comprehensive agreement that outlines how it will operate, as those who enter into a partnership – a General Partnership in particular – are equally liable for the actions of the other partners.
Company
A company, or corporation, is a business structure typically sought after for businesses with high growth potential. ‘Companies’, unlike a sole trader or a partnership structure, a separate legal entity which means a company structure gives a business the same rights as a natural person. This means a business listed as a company structure can incur debt, sue and be sued.
Companies are bound by all regulations and obligations under the Corporations Act 2001 (Cth). As a result members are not liable for company debts but directors working under a company structure may be personally liable found to be in breach of their legal obligations.
Trust
A trust is an obligation imposed on a person (a trustee) to hold property or assets (such as business assets) for the benefit of others, known as beneficiaries. Under a trust structure, a formal trust deed must be written to outline how the trust operates and the trustee must undertake formal yearly administrative tasks. A trustee of a trust can be a company, but an individual trustee is legally responsible for the business’ operations.
Commercial Lawyer Brisbane has a team of lawyers who benefit from years of business structure experience, who can point you towards the best path for your professional journey. Get in touch today to find out more about the right business structure for you.