• The structure you choose to operate your business through is one of the most important elements of starting a business.
• The structure you choose can lead to a range of different outcomes and consequences in terms of:

• ownership;
• taxation;
• asset protection issues; and
• your personal exposure to liabilities, creditors, consumers or the public.

• Which structure is going to work best for you and your business will depend on many interrelated and sometimes complex considerations. It is important to make the most appropriate decision from the start as it can often be costly and difficult to change your business structure down the track.
• Generally a good business structure will be flexible enough to:

• accommodate changing future circumstances with minimal negative impact;
• provide protection for major assets and for the principals of the business;
• facilitate the distribution and sharing of profits; and
• minimise running costs and tax.

• The four most common business types for a small to medium enterprise are:

• sole traders;
• partnerships;
• companies; and
• trusts.

1. Sole trader/proprietor

• A sole proprietor is an individual who carries on a business as themselves rather than creating a separate legal entity.
• The person and the business are considered one and the same for all taxation and legal purposes.
• To understand more about the advantages and disadvantages of operating your business as a sole trader or proprietor you can read our Sole Trading topic.

1. Partnerships

• A partnership is a group of individuals or entities who carry on a business or activity together with a view to profit or to receive income jointly.
• Generally the partners each take part in managing and running the business.
• The partnership itself is not a separate legal entity which means that all assets of the partnership are owned by partners jointly or according to the details in the partnership agreement. 
• To understand more about the advantages and disadvantages of operating your business as a partnership you can read our Partnerships topic.

1. Companies

• A company is a separate legal entity which can hold assets, debts and liabilities in its own name.
• The participants in a company are the shareholders and the directors.
• The shareholders are considered to be the owners of the business. They provide the capital but have no direct ownership of company assets or any participation in the daily affairs of the business management.
• Directors control the company and are obliged to manage the company in a way which benefits the shareholders. A range of obligations and duties are placed on directors of a company to act in the best interests of the shareholders.
• To understand more about the advantages and disadvantages of operating your business as a company you can read our Companies topic.

1. Trusts

• A trust is a legal relationship in which a person or organisation (the trustee) takes legal ownership of property or other assets (such as business assets) for the benefit of another person, persons or an organisation (the beneficiaries).
• Once the person establishing the trust (the settlor) transfers the property to the trustee (usually an individual or company) they no longer own the assets. The property held on trust is owned in law by the trustee and in equity by the beneficiaries. This means that only the trustee has the right to deal with the property such as by selling it but only the beneficiaries have the right to share in the profits if it is sold.
• The trustee becomes legally responsible for the operations of the business. There are strict and heavy obligations placed on trustees to act in the best interests of beneficiaries at all times in the management of the trust. Failure to do so can expose a trustee to claims by beneficiaries.

To understand more about the advantages and disadvantages of operating your business as a trust you can read our Trusts topic

• Although there are similarities between some of these structures the advantages and disadvantages of each can have a significant impact on your business success. The most appropriate choice of business structure will also depend on your individual situation.
• Before making important decisions it is advisable to obtain legal advice specific to your situation. You can use our free Find a Lawyer directory to contact a lawyer near you.