A business structure usually refers to a legal structure that is put in place to be able to run a business and its operations. Running a business comes with compliance and reporting obligations to various government agencies (such as ATO) and the structure often dictates the level or reporting and the tax liabilities that comes as a result of the profits made. Thus, it is extremely important to have the right structure in place and it is advisable to take professional assistance from suitably qualified accountants and/or lawyers.
In Australia, there are broadly four types of structures under which businesses can be operated namely,
Sole Trader: A sole trader is an individual running a business. It is the simplest and cheapest business structure. If you operate your business as a sole trader, you are the only owner and you control and manage the business. You are legally responsible for all aspects of the business. Debts and losses can't be shared with other individuals. You can employ workers in your business, but you can’t employ yourself. As a sole trader, you are responsible for paying your worker's super. You're also responsible for your own super and may choose to pay it into a fund for yourself to help save for your retirement.
Partnership: A partnership is a group or association of people who carry on a business and distribute income or losses between themselves. A partnership is relatively inexpensive to set up and operate. The partners share income, losses, and control of the business. A written partnership agreement is not essential for a partnership to exist, but is a good idea. A partnership agreement should outline how income or losses will be distributed to the partners and how the business will be controlled. A partnership agreement can also help prevent misunderstandings and disputes about what each partner brings to the partnership, and what they are entitled to receive from the income of the business. This is particularly important for tax purposes if the profit or losses are not distributed equally among partners. The partners in a partnership are not employees, but the partnership might also employ other workers.
Partners are responsible for their own superannuation arrangements. However, the partnership is required to pay superannuation for its employees.
Pty Ltd Company: A company is a legal entity with higher set-up and administration costs. Companies also have additional reporting requirements. A company is run by its directors and owned by its shareholders. While a company provides some asset protection, its directors can be legally liable for their actions and, in some cases, the debts of the company. Companies are regulated by the Australian Securities & Investments Commission (ASIC). For the purposes of asset protection, Pty Ltd companies are also set up to act as trustees for trust.
Trusts: Trusts are widely used for investment and business purposes. A trust is an obligation imposed on a person or other entity to hold the property for the benefit of beneficiaries. While in legal terms a trust is a relationship, not a legal entity, trusts are treated as taxpayer entities for the purposes of tax administration. The trustee is responsible for managing the trust's tax affairs, including registering the trust in the tax system, lodging trust tax returns and paying some tax liabilities. Beneficiaries (except some minors and non-residents) include their share of the trust's net income as income in their own tax returns. There are special rules for some types of trust including family trusts, deceased estates, and super funds.