Guides · Australian Business Legal Guide · Chapter 1 of 7
Getting the structure right
Last reviewed 14 August 2026
Sole trader, partnership, company and trust — how each is treated in Australia, and the practical consequences of the choice.
In short
The structure you trade through decides who is personally liable, how profits are taxed, and how easily you can bring in investors or sell. Most Australian operating businesses of any scale trade through a proprietary limited company, sometimes with a discretionary trust holding the shares.
The structure question arrives before almost everything else, and it is one of the few decisions that becomes materially more expensive to change later. Restructuring a trading business means moving contracts, licences, employees, bank facilities and often the tax base.
The four common structures
- Sole trader. Simplest and cheapest. The individual is the business — no separation between business assets and personal assets. Business income is taxed at personal marginal rates.
- Partnership. Two or more people carrying on business in common with a view to profit. Partners are generally jointly and severally liable for partnership debts, which means one partner's decision can expose the others personally.
- Proprietary limited company (Pty Ltd). A separate legal person registered with ASIC. The company contracts, owns assets and incurs liabilities in its own name. Shareholders' exposure is generally limited to unpaid share capital, subject to guarantees and directors' duties.
- Trust (usually discretionary, with a corporate trustee). A trustee holds assets for beneficiaries. Used for flexibility in distributing income and to separate risk from ownership. Trusts are not ideal for retaining profits for reinvestment or for taking on outside equity.
What actually drives the decision
In practice the choice usually turns on four things: how much liability the activity generates, whether profits are drawn out or reinvested, whether outside investors are in the picture, and what an eventual exit looks like. A consultant billing time with low liability exposure and no plans to sell has very different needs from a manufacturer with staff, plant and customer indemnities.
A common Australian arrangement is an operating company (Pty Ltd) trading day to day, with shares held by founders directly, or by family trusts, or by a holding company that also owns the intellectual property. That last pattern — IP and cash sitting outside the entity that carries the trading risk — is the standard way of keeping a bad year from taking everything with it.
Directors: what you are signing up for
Becoming a director is a personal legal commitment, not a title. The Corporations Act 2001 (Cth) imposes duties to act in good faith in the best interests of the company, to act for a proper purpose, to exercise care and diligence, to avoid improper use of position or information, and to prevent the company trading while insolvent. Directors also need a director identification number, and remain personally exposed to certain tax and superannuation liabilities through the ATO's director penalty regime.
The practical implication is unglamorous: keep the company's records straight, know whether it can pay its debts as they fall due, and document decisions where interests could conflict.
Registrations that follow the structure
- ABN for anyone carrying on an enterprise; ACN issued on company registration.
- GST registration once turnover reaches the registration threshold (or immediately, if you would rather claim input credits from day one).
- PAYG withholding and superannuation obligations from the first employee.
- Business name registration where you trade under anything other than your own or the company's legal name — noting that a business name gives you no brand ownership at all.
- Industry licences — building, labour hire, security, liquor, financial services, and others, most of which are state-based.
Getting the paperwork to match reality
The most common structural defect we see is not the wrong structure. It is a structure that no longer matches how the business actually operates: contracts signed in the name of an entity that was deregistered, invoices issued by a trust while the contract sits with a company, or an ABN that belongs to a partnership that quietly ended two years ago. When a counterparty defaults or a purchaser runs diligence, those mismatches surface immediately.
An annual half-hour check — who contracts, who invoices, who holds the licence, who employs the staff — costs nothing and catches almost all of it.
Where this fits
We advise on structure and restructuring as part of our business structures work, always on a fixed fee agreed before we start. If you already trade and simply want to know whether the current setup still fits, that is a short, contained piece of work rather than a project.
Talk to us
Want this applied to your business?
Send us a note about what you're working on. We'll respond within one business day and, if we're a fit, book a free 15-minute consultation with a senior lawyer.
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