What Are The 4 Business Structures In Australia?

Australia has a rather simple business structure. Unlike the rather complex 11-type business structures of the UAE, Australia only has four main types of companies that can be formed.

In this article, we will talk about all four of these business structures, how they operate and what are tax systems surrounding them.

So let’s get right into it!

Table of Contents

What Is A Business Structure?

A business structure is like the blueprint for how a company is organized and operates. It’s how a business is legally set up and managed. Imagine it as the foundation of a house.

There are different types, like sole proprietorships, partnerships, corporations, and LLCs. For Australia specifically, the four types of company formations are mentioned below in the next section.

I often explain to my Australian clients that your business structure determines three crucial aspects:

How much tax do you pay
Your liability if things go wrong
How easy will it be to raise capital as you grow

According to TechTarget, your structure impacts everything from day-to-day operations to long-term strategic decisions. I’ve seen many entrepreneurs rush this decision only to face costly consequences later.

For example, let’s say you and a friend start a bakery together. You can choose a partnership as your business structure. In this setup, both of you share the responsibilities and profits. It’s like a team effort.

On the other hand, if you decide to open a tech company and want to raise money from investors, a corporation might be better. In a corporation, you can issue shares to investors and have a board of directors to make decisions.

The choice of business structure can impact taxes, liability, and how you can grow your business, so it’s an important decision for any entrepreneur.

What Are The Four Business Structures In Australia?

The 4 Business Structures In Australia

In Australia, there are four main ways you can structure your business, and each has its pros and cons. You can run your business as a sole trader, partner up with someone in a partnership, go with a trust, or establish a company.

Choosing the right business structure is a big deal when you’re starting because it affects how you’ll deal with taxes and what kind of paperwork you’ll have to do as your business grows.

To make this decision, think about stuff like how many people are in your business, what exactly your business will do, how much money you’ll make, and how big you want your business to become.

We’d recommend you go through our starting a small business guide in Australia, to know more about how you can choose the right business structures for your endeavor.

Now let’s explore them each one by one.

1. Sole Trader

This is the most basic way to run a business.

A sole trader is someone who runs the whole show by themselves. Even if you hire others to help, you’re the one in charge, and you’re legally responsible for everything the business does. In the eyes of the law, your business and you are like a package deal – you both use the same tax and business numbers.

Plus, any money the business makes or debts it racks up are all on your shoulders; you can’t split that responsibility with anyone else except yourself.

We have discussed extensively the sole trader business models and how they compare to a company in Australia in our sole trader vs company blog.

How Does The Sole Trader Tax Work In Australia?

If you’re running your own business as a sole trader, the tax you owe will be based on how much money you make. This means the profit you earn from your business after subtracting allowable deductions.

As a sole trader, you must pay taxes at your tax rate. These rates can vary, but for the 2023-24 financial year, they look like this:

If your income is up to $18,200, you won’t have to pay any tax (this is known as the tax-free threshold).
If your income falls between $18,201 and $45,000, you’ll pay 19 cents for every extra dollar over $18,200.
If you earn between $45,001 and $120,000, you’ll pay $5,092 plus 32.5 cents for each extra dollar over $45,000.
For incomes ranging from $120,001 to $180,000, you’ll owe $29,467 plus 37 cents for every additional dollar over $120,000.
If your income exceeds $180,000, you’ll pay $51,667 plus 45 cents for every extra dollar over $180,000.

Keep in mind that tax laws and rates can change over time, so it’s crucial to stay updated with any revisions.

Additionally, as a sole trader, you might have other taxes to consider.

For instance, if your business’s annual turnover reaches $75,000 or more, you’ll need to pay a 10% goods and services tax (GST). There’s also the Medicare Levy, which amounts to 2% of your taxable income.

Do go through our sole trader tax guide to know all the legalities and technicalities of this domain.

2. Partnerships

When two or more people team up to run a business together, it’s called a partnership. They share the business earnings. Making a partnership is usually easy on the wallet.

Most partnerships are created using a partnership agreement that spells out who does what and who gets what.

Here’s the catch: the partnership itself doesn’t get taxed; instead, each partner pays tax on the money they make from the partnership. But there’s a downside too.

Partners share not just profits but also the legal responsibility for the business’s debts and obligations. This means if the business can’t pay its bills, the partners are on the hook.

Plus, disagreements among partners can be a problem and harm trust in the partnership.

The partnership itself isn’t a separate legal entity, which creates some important considerations:

The startup costs are generally low (primarily just partnership agreement fees)
Each partner shares responsibility for business debts
Partners must file an annual partnership tax return
Profits are distributed according to the partnership agreement

How does partnership tax work?

In a partnership, you and your business buddy don’t have to pay income tax as a team, but you have to file a special tax form for the partnership every year. This form tells the government how much money the partnership made and who gets how much.

When the partnership earns money or loses money, each partner includes their part in their tax report. Even if you don’t get the money, you still have to tell the tax folks about it.

On the other hand, the partnership also has to fill out its tax form to share info about how much money it made, what it spent, and who got what.

When it comes to things like selling stuff and making a profit, each partner is responsible for figuring out their own share of the gain or loss for tax purposes.

A crucial note for 2025: The new Corporate Transparency Act now requires additional reporting for partnerships, with reporting deadlines having passed in January 2025 for existing entities. New partnerships have only 30 days to file these reports, making proper record-keeping more critical than ever.

3. Trust

In a trust, there’s someone called a trustee who looks after the property or stuff in the trust and runs the business on behalf of the folks who benefit from it.

This trustee can be a person or a company.

But how do you create a Trust? Compared to other business structures, a trust is usually not for profit.

To create a trust, you need a formal Deed, and the trustee has to do yearly tasks. This can make it quite expensive and complex.

Key aspects of trusts include:

Flexible income distribution to minimize tax
Asset protection benefits
Potential for succession planning
Higher setup and maintenance costs

But, the downside is that trusts can cost a lot to create, and there are extra rules and legal stuff to follow.

What taxes do trusts pay?

When it comes to trusts, the way taxes work depends on who benefits from them.

If you’re an adult or a company that benefits from a trust, you’ll pay taxes on the income you get from the trust based on your regular tax rate.

The trust taxation system is arguably the most complicated of all Australian business structures. Based on the Australian tax framework, here’s how it typically works:

Income distributed to adult beneficiaries is taxed at their rates
Income retained in the trust (undistributed) is typically taxed at the top marginal rate (45%)
Special rules apply for distributions to minors (under 18)
The trustee must lodge an annual trust tax return

One of my clients, a Perth property investor, uses ProfitBooks to track income streams across multiple properties held in trust. Our reporting features help him optimize distributions to family members in lower tax brackets, saving his family approximately $12,000 annually in taxes.

Now, for non-residents and minors, things are a bit different.

The person in charge of the trust, called the trustee, pays the taxes on their behalf. But these beneficiaries might still need to report that income on their tax returns. They can also get a tax credit for the tax paid by the trustee.

If the trust gives money to minors, there might be higher tax rates. This applies to folks under 18 years old.

Sometimes, there might be some money in the trust that no one can access right now. In that case, the trustee pays taxes on that portion of the income. If the trust doesn’t have any income, the trustee pays taxes on any net income.

Usually, the trustee is taxed at the highest individual tax rate, except for some special trusts like deceased estates, which have different tax rates.

4. Company

A company is like its own legal character, able to own stuff under its name.

When you see “Pty Ltd” after a business name, it means that the business is a registered legal thing doing business on its own. Shareholders own a company, and directors are the ones steering the ship day-to-day. Any profits a company makes go to the shareholders as dividends.

Companies have to follow the Corporations Law, which means directors have to put the company’s interests first.

Key characteristics include:

Limited liability protection for shareholders
A flat corporate tax rate (currently 25-30%, depending on turnover)
Perpetual existence independent of ownership changes
Ability to raise capital through share issuance
Higher setup and compliance costs

It would be better if you went through our guide comparing companies and sole traders so that you get a good idea of how a company can act similarly to an individual entity while still being differentiated legally from a sole trader.

What taxes do companies have to pay?

Although we’ve discussed extensively the business taxes in Australia, we’ll briefly mention all the ‘need-to-know’ about it. As this is a very vast topic, we recommend you go through that guide if you’d like to know in depth about this.

There are three taxes that companies in Australia have to pay: Company or Income Tax, Capital Gains Tax (CGT), and Goods and Services Tax (GST). Other than that, there are some minor taxes as well, like fringe benefits tax and payroll taxes.

All the taxes that we’ve mentioned above are dynamic and the tax rate depends on the company size and turnover. It is only GST that is fixed at 10% and has always been since its inception in the year 2000.

State-by-State Variations in Business Structures

One aspect many nationwide guides miss (and I’ve learned through working with clients across Australia) is how business structure requirements vary by state.

According to research from Wolters Kluwer, key differences include:

State	LLC Annual Fees	Payroll Tax Threshold	Registration Peculiarities
NSW	Variable	$1.2M	$500 company registration fee
Victoria	$0	$2M	Specific retail lease requirements
Tasmania	$0	$1.25M	Simpler business registration

These differences can significantly impact your choice of business structure and operating costs.

I recall helping a client who relocated from Tasmania to NSW and was surprised by the additional compliance costs. Having ProfitBooks track these expenses separately helped them plan for the transition.

Frequently Asked Questions

After helping numerous Australian business owners with their financials over the years, here are answers to the questions I’m most frequently asked:

What’s the cheapest business structure in Australia?

The sole trader structure is the most cost-effective, with essentially zero registration costs beyond an ABN application fee of approximately $99. This makes it ideal for startups and side hustles, testing new business ideas.

Can a sole trader hire employees?

Yes, absolutely! Many of my clients start as sole traders with employees. You’ll need to register for PAYG withholding and potentially make superannuation contributions. ProfitBooks makes managing employee payments straightforward with our payroll features.

How do partnerships handle disputes?

This depends entirely on your partnership agreement. I always advise my clients to include detailed dispute resolution processes in their agreements. Without these provisions, I’ve seen partnerships dissolve over relatively minor disagreements. The Partnership Act in each state provides default rules if your agreement is silent on an issue.

What happens if a sole trader dies?

Unlike a company, a sole trader business doesn’t continue automatically after death. The business assets become part of the deceased’s estate. I worked with a family who faced this situation unexpectedly – having their financial records organized in ProfitBooks made the transition and estate settlement much smoother during an already difficult time.

Conclusion

Every business is unique, and no two business owners have identical situations.

It’s a good idea to have a chat with an accountant or lawyer to discuss the expenses and potential drawbacks of different business structures. This way, you can ensure that you’re picking the perfect business setup that suits your specific business and its future requirements.

Whatever your business structure may be, handling your finances properly is a must.

ProfitBooks allows just that, by providing powerful bookkeeping and financial records on the cloud. So your business travels with you! Get your 100% FREE account now!