Choosing a structure that works for the law and the tax
Many businesses start in whatever structure was quickest at the time. A sole trader registration on day one. A partnership because two friends started together. A company set up by a friend of a friend. Years later, the business has grown, the risks have changed and the structure hasn't.
Structure decides more than the tax. It affects personal liability, how profits can be distributed, how easily investors or partners can join and how the business can eventually be sold. Getting it right needs both legal and accounting thinking.
The short version
- Company vs trust is rarely an either-or decision. Many growing businesses use both in a group structure.
- The main structures are sole trader, partnership, company and trust, often combined into groups.
- Each has different implications for liability, tax, cost, control and future sale.
- Legal and Accounting work through the structure together, with an appropriately qualified professional stepping in where the law requires it.
- Choose deliberately at the start and review as the business grows, because restructuring later is possible but more complex.
- NOIZE provides administrative support and business strategy.
- Where work is outside our skillset, or the law requires it, we make sure an appropriately qualified professional is involved.
The main structures, simply
01Sole trader
Simple and inexpensive. The owner and business are legally the same, so the owner is personally liable for debts.
02Partnership
Two or more people carrying on business together. Partners are generally liable for partnership debts, which can include the actions of other partners.
03Company
A separate legal entity owned by shareholders and run by directors. Liability is generally limited, but directors have legal duties. Companies have more compliance and cost.
04Trust
A trustee holds assets and runs the business for beneficiaries. Trusts can offer flexibility in distributions and asset protection, but are more complex to set up and run.
05Groups
Many growing businesses use combinations, such as a trading company owned by a holding company or trust, to separate risk and assets.
What structure affects
- Liability. Whether personal assets are exposed to business debts and claims.
- Tax. How profits are taxed and distributed.
- Cost and compliance. Setup costs, annual obligations and administration.
- Control. How decisions are made and by whom.
- Raising capital. How easily investors or new partners can join.
- Sale and succession. How the business can be sold or passed on.
> I've co-founded companies, invested in dozens more and been through exits. The structures that caused problems were almost always the ones nobody chose deliberately. Fixing them at the point of a sale or investment was always more expensive and stressful than setting them up properly in the first place.
“Things really got moving beyond our expectations.”
Why Legal and Accounting decide together
A structure can be legally sound and tax-inefficient, or tax-efficient and legally risky. NOIZE Legal and NOIZE Accounting work on it together, covering the entities, agreements, tax and cash flow, with an appropriately qualified professional involved where required. The result is a structure that suits the business you are building.
When to review your structure
When profits grow significantly. When you take on significant assets or risk. When a partner joins or leaves. When you plan to raise capital. When you are preparing to sell. When family succession is on the horizon.
An illustrative example
Picture a sole trader whose business has grown to several staff, a lease and significant equipment, with the family home exposed to business risks. A review recommends a company to trade through and a separate structure to hold key assets. Legal and Accounting coordinate the entities, agreements and tax, and plan the transition at the right time. The owner's personal risk falls and the business is better positioned for future investment or sale.
Mistakes to avoid
- Don't choose a structure based only on tax.
- Don't leave the original structure in place long after the business has outgrown it.
- Don't restructure without considering tax consequences such as capital gains and duties.
How NOIZE Legal works with you
The work an organised person could do themselves is where NOIZE Legal steps in: organising agreements and documents, preparing the information a lawyer needs and searching the trade mark register. We also give business strategy advice around choosing a structure that works for the law and the tax, so decisions are made with the bigger picture in view.
Work beyond our skillset, or that needs a qualified practitioner, goes to an appropriately qualified professional. That split is set out clearly in the strategy or proposal.
You stay in control throughout. Accounts and records remain in the business name, and you can see exactly what has been done and why.
Questions to ask about your structure
- When was our structure chosen, and why?
- Are personal assets exposed to business risk?
- Do we expect to bring in partners or investors?
- Are we planning a sale or family succession?
- Has profit grown significantly since we started?
The answers usually show whether a review is due.
Where to start this week
Write down your current structure and three facts: your annual profit, your significant assets and your plans for the next five years. If the structure was chosen before any of those were true, it is time for a review. See legal.noize.com.au and accounting.noize.com.au.
How Legal connects to the rest of NOIZE
No department works in isolation, least of all this one. NOIZE IT supports privacy obligations with secure systems. Where the law requires a qualified practitioner, an appropriately qualified professional is involved, and the approach is agreed with you at the strategy or proposal stage. NOIZE Creative develops names and brands, and Legal checks and protects them through trade mark searches and applications. NOIZE Sales relies on clear terms of trade. NOIZE Accounting works with Legal on structure and its tax implications. NOIZE Finance works alongside Legal when a deal needs funding and paperwork at the same time.
Related reading
- The partnership runs on a handshake: why agreements protect relationships
- Is your brand protected? Trademarks for business owners
This article is general information only. It is not legal, tax or financial advice, and it does not take your circumstances into account. Speak to a qualified adviser before acting.
NOIZE provides administrative support and business strategy. Where work is outside our skillset, or the law requires it, we make sure an appropriately qualified professional is involved.
Common questions
Which business structure is best?
It depends on your liability, tax, growth and succession needs. There is no single best structure.
When should a sole trader become a company?
Often when risk, profit, staff or growth plans make limited liability and flexibility more valuable than simplicity.
What is a holding company?
A company that owns shares in another company, often used to separate assets from trading risk.
Is a trust right for my business?
Trusts suit some situations well. Legal and Accounting can assess whether one fits yours.
Can I change my business structure later?
Yes, but restructuring can have tax and legal consequences, so it needs planning.
What are directors' duties?
Legal obligations directors have to act in the company's interests, with care and diligence.
Does structure affect selling the business?
Yes. It can affect how a sale is structured and taxed.
Can NOIZE set up the structure?
Yes. NOIZE Legal and Accounting coordinate it, with an appropriately qualified professional where the law requires it.
Is NOIZE Legal a law firm?
NOIZE Legal handles legal administration and gives business strategy advice. Where the law requires a qualified lawyer, or the matter is outside our skillset, an appropriately qualified professional is involved.
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