Business setups and structures have an impact on who can make important decisions, tax advantages and disadvantages, how profits and losses are shared, legal obligations and costs. For every business the three most important business structures are sole trader, partnership and company. The structure identifies your operation as a trading business.
Knowing the difference between these structures and choosing what's best for your business can put you in the most favorable tax and legal position.
Three most popular business structures
Sole Trader - A sole trader is a simple business structure that give you, the owner, all the decision making power. You can also hire staff if you want to. Business losses can be written off your PAYG tax from another job.
Partnership - A partnership is formed when two or more people (up to 20) go into business together. Partnerships can either be general or limited.
Company - A company has members (shareholders) who own the company, and directors who run it. However, if you're an independent contractor you can set up a 'one person company' with a sole director and member. Companies can also be listed as public companies, meaning the public can buy shares to invest in the company.