Business Structures - An Overview for South Australians

Choosing the right business structure is one of the most important early decisions for individuals, families, and small businesses in South Australia. The structure you adopt affects your tax obligations, reporting requirements, liability exposure, and even how easy it is to bring in new partners or plan for succession.

This overview explains the four main business structures recognised in Australia – sole trader, partnership, trust, and company – along with their advantages, disadvantages, and key considerations.

Sole Trader

A sole trader is the simplest and most common business structure. You operate in your own name or under a registered business name.

Key features:

• Easy and inexpensive to establish.

• Minimal compliance and reporting.

• Income is taxed at individual tax rates.

Advantages:

• Low setup costs.

• Full control of business decisions.

Disadvantages:

• Unlimited personal liability for debts and obligations.

• Harder to raise capital.

• Business ceases on death or incapacity of the owner.

This structure suits individuals starting out with low risk operations but may be limiting as the business grows.

Partnership

A partnership involves two or more people carrying on a business together with a view to profit.

Key features:

• Formed by agreement (usually a written partnership agreement).

• Each partner pays tax on their share of income.

• Simple and relatively inexpensive to establish.

Advantages:

• Shared responsibility and skills.

• Easier to raise finance than as a sole trader.

Disadvantages:

• Partners are jointly and severally liable for debts.

• Potential for disputes and breakdowns in trust.

• Business continuity can be uncertain.

A clear, legally drafted partnership agreement is essential to reduce conflict.

Trust

A trust is a more complex structure where a trustee (an individual or company) carries on business on behalf of beneficiaries.

Key features:

• Requires a formal trust deed.

• More complex administration and reporting.

• Trustee has significant legal duties.

Advantages:

• Flexibility in distributing income to beneficiaries.

• Asset protection through correct structuring.

• Can be tax-effective for families with multiple income earners.

Disadvantages:

• Higher setup and compliance costs.

• Annual trustee responsibilities.

Trusts are commonly used in family businesses and for asset protection but require careful legal and accounting advice.

Company

A company is a separate legal entity, registered with ASIC, capable of holding assets and incurring debts in its own name.

Key features:

• Owned by shareholders, managed by directors.

• Profits distributed as dividends.

• Governed by the Corporations Act 2001 (Cth).

Advantages:

• Limited liability for shareholders.

• Ongoing existence regardless of changes in ownership.

• Easier to raise investment capital.

Disadvantages:

• Higher setup and compliance costs.

• Directors have strict legal duties.

• Ongoing public reporting requirements.

Companies are suited to businesses planning significant growth or seeking external investment.

Comparing Business Structures

Structure	Liability	Tax Treatment	Costs & Complexity	Best Suited To
Sole Trader	Unlimited personal	Individual tax rates	Low	Start-ups, micro businesses
Partnership	Joint & several	Partners taxed individually	Moderate	Small groups, family/friends
Trust	Trustee liable	Income distributed to beneficiaries	High	Family businesses, asset protection
Company	Limited to company assets	Corporate tax rate, dividends to shareholders	High	Growing or scalable businesses

Frequently Asked Questions

What is the cheapest business structure?

A sole trader is the most affordable to set up and run.

Can I change my business structure later?

Yes. Many businesses start as sole traders and transition to a company or trust as they grow.

Which structure provides the best tax benefits?

This depends on your income, family circumstances, and future growth plans. Trusts and companies often offer flexibility but come with higher costs.

Do I need a lawyer to set up a business structure?

For partnerships, trusts and companies, legal advice is highly recommended. Drafting agreements and deeds correctly is crucial to avoid future disputes.

Conclusion and Next Steps

No two businesses are the same, and the best structure depends on your goals, risk profile, and long-term plans. Choosing the wrong structure can expose you to unnecessary risk or tax disadvantages.

At Craig McKay Legal, we help individuals, families, and small businesses across Adelaide and South Australia set up the right business structure to protect assets, manage tax, and plan for growth.

Take advantage of our complimentary no-obligation telephone consult on any new matter.

This article is for general information only and is not a substitute for legal advice. For advice specific to your situation, please contact our office.