Choosing the Right Business Structure in Queensland

Important Takeaways

• The structure you choose is the legal foundation of your business, fundamentally impacting your personal liability, tax rate, administrative costs, and potential for growth.
• Choosing the wrong structure early on can lead to costly and complicated restructuring, unexpected tax bills, and personal financial risk.
• The most significant factor for many Gold Coast businesses is personal liability: understanding whether your home and savings are protected if the business incurs debt or faces a lawsuit.
• Always seek combined legal and accounting advice to match your business structure to both your commercial goals and your long-term wealth protection strategy.

Why Business Structure Matters

Starting a new venture is exciting, but before launching your website or signing your first lease, you must first select a business structure. This choice is arguably the most critical legal business decision you’ll make, as it determines the level of personal liability you face, the applicable tax rate, the complexity of compliance, and your ability to scale the business.

Your legal structure dictates whether you, as an individual, are legally and financially responsible for the business’s debts and obligations, or if a separate legal entity bears that risk. It also dictates your opportunities for tax planning and income distribution.

Unfortunately, many entrepreneurs initially choose the simplest structure, only to discover later that it exposes their personal assets or limits their ability to grow, resulting in an expensive and complex restructure. By understanding the core options from the outset and acknowledging the complexity involved, you can avoid costly mistakes and set your business up for long-term success.

Sole Trader

The Sole Trader structure is the easiest and cheapest way to start a business in Australia, often preferred by freelancers, consultants, and home-based startups.

Definition and Implications

A Sole Trader is an individual who runs a business as themselves. They may trade under their own name or a registered business name, but there is no legal distinction between the person and the business. The individual owns all business assets and is also personally responsible for all business debts.

The advantages of this structure are primarily operational: it is the simplest and lowest-cost structure to establish and maintain, and the owner retains full control over all operational and financial decisions. Furthermore, taxation is relatively straightforward as all income is simply reported via the owner’s personal income tax return using their Tax File Number (TFN).

However, the primary disadvantage is the exposure to unlimited personal liability. Should the business incur significant debt or face a lawsuit, the Sole Trader’s personal assets (this includes their house, car, and savings) are at risk. This structure also offers limited growth potential as it is difficult to raise outside capital or incorporate partners. The structure’s tax inflexibility also means profits are taxed at the owner’s individual marginal rate, which can be high.

Legal Obligations

As a Sole Trader in Queensland, you must first obtain an Australian Business Number (ABN). You must also register a business name with the Australian Securities and Investments Commission (ASIC) if you trade under anything other than your personal name (e.g. “Jane Smith Graphic Design”). Finally, you are required to register for Goods and Services Tax (GST ) if your annual turnover is $75,000 or more.

Partnership

A Partnership is a common step for small businesses where two or more individuals want to go into business together to pool skills, capital, and workload.

Definition and Implications

A business Partnership is defined as an association of people who carry on a business together, intending to profit. Like the Sole Trader, a Partnership is not a separate legal entity from its owners. Instead, the partners are considered collectively responsible for the business’s actions and finances.

The key benefit is the shared responsibility for capital and workload, allowing partners to pool diverse skills and expertise. It is also inexpensive and relatively simple to set up compared to a Company or Trust. Tax is transparent, as the partnership itself does not pay income tax; instead, partners are taxed individually on their proportionate share of the net profit at their marginal tax rates.

The significant risk is joint and several liability. This means that each partner is personally liable for all business debts, including those created by the other partners. Furthermore, the need for shared decision-making carries a high risk of disputes, and the partnership legally ceases to exist if one partner dies or retires, necessitating complex dissolution proceedings.

Legal Obligations

While a verbal or implied agreement may legally form a partnership under the Partnership Act 1891 (Qld), a written agreement drafted by a commercial lawyer is essential for clarity and dispute prevention. This document outlines management structure, profit shares, dispute resolution, and rules for partner departure or death, offering protection and certainty against future conflicts. The partnership must obtain an ABN, TFN, and register for GST if its turnover meets the threshold.

In Queensland, partners may also consider a Limited Partnership, which allows for ‘silent’ partners whose liability is limited to their capital contribution, often used in venture capital arrangements.

Company

The Company business structure is often chosen by businesses planning for rapid expansion, dealing with high-risk commercial activity, or needing to attract external investment.

Definition and Implications

A Company is a separate legal entity incorporated under the Corporations Act 2001 (Cth) and registered with ASIC. This separation means the company has its own rights and liabilities distinct from its owners (shareholders) and managers (directors).

The cornerstone benefit is Limited Liability. In most cases, the shareholders’ personal assets are protected from the company’s debts. For businesses with high commercial risk or owners with significant personal assets, this protection is invaluable. Companies also benefit from a lower corporate tax rate, currently a flat 25% (for base rate entities), which is often beneficial when profits are high. Furthermore, the structure makes it easier to raise capital by issuing shares to new investors. The most common type is a Proprietary Limited (Pty Ltd) company.

Conversely, the Company structure is marked by higher costs of initial setup and strict compliance and reporting requirements imposed by ASIC. Directors carry significant legal responsibility known as Director Duties, including acting in good faith and preventing the company from trading while insolvent. Failure to meet these duties can result in personal liability, even within a limited liability structure.

Legal Obligations

Companies face the highest regulatory burden. ASIC Registration is required for a company to obtain an Australian Company Number (ACN), and it must file an annual review. A customised company constitution is not strictly required, as companies may instead rely on the replaceable rules under the Corporations Act 2001 (Cth). However, some companies adopt a tailored constitution to ensure certainty, flexibility, and alignment with their ownership and management needs. Directors must meet strict legal duties. Finally, the company must lodge its own tax return and pay corporate tax on its profits, separate from the owners’ personal tax returns.

Trust

The Trust structure is an advanced form of business arrangement primarily used for sophisticated asset protection and tax planning, especially among family-owned businesses.

Definition and Implications

A Trust is a legal arrangement where one party (the Trustee) holds and manages assets or runs a business on behalf of others (the Beneficiaries). The Trustee can be an individual or, more commonly, a proprietary company.

Trusts provide strong asset protection when correctly established, often by legally separating business assets from the trading entity. A trust structure also offers considerable tax flexibility, particularly through a discretionary (family) trust, where the trustee determines how income is distributed among beneficiaries to achieve tax efficiency.

The major drawbacks are the high cost and complexity of establishing and administering a trust, necessitating expert legal and accounting advice. Trusts require complex compliance and taxation procedures. Crucially, the structure is governed by a Trust Deed, a detailed, legally binding document drafted by a solicitor. If this deed is poorly drafted or restrictive, making fundamental changes to the trust’s operation later is often difficult and costly.

Legal Obligations

The Trustee has a fiduciary duty to act in the beneficiaries’ best interests. The Trust must obtain its own TFN and lodge a yearly tax return, detailing its income distribution to the beneficiaries, who then pay tax on the income they receive.

How to Choose the Right Structure

Choosing the best structure isn’t about picking the cheapest or simplest; it’s about aligning your business structure with your personal tolerance for risk and your commercial ambitions.

Key Decision Factors

Decision Factor	Low Risk/Simplicity Focus	High Risk/Growth Focus
Liability	Sole Trader or Partnership (Accepting personal risk).	Company or Trust (Seeking limited personal liability).
Control	Sole Trader (Retaining 100% individual control).	Company (Comfortable sharing decision-making via Directors/Shareholders).
Taxation	Sole Trader (When starting with low profits).	Company or Discretionary Trust (When profits are high or family income splitting is desired).
Future Growth	Partnership (Suitable for steady, contained growth).	Company (Required for issuing shares, attracting outside investors, or scaling nationally/internationally).

 

The first question to consider is how much personal risk you are willing to accept. If you operate in a high-risk industry (e.g. construction) or own valuable personal assets such as your home, a company or a trust with a corporate trustee is generally recommended for asset protection.

If you plan to sell the business, attract investors, or hand it down to your children, a Company structure is usually best due to the ease of transferring ownership via shares.

While you can change your business structure later (e.g. Sole Trader to Company), the process is not simple. It often involves transferring assets, cancelling ABNs, and can trigger stamp duty or Capital Gains Tax (CGT) consequences, even with available small business roll-over relief provisions. Getting it right the first time saves significant time and money.

Other Legal Considerations

The choice of entity is just the start. To ensure your business is legally robust, you must also address these critical elements:

The Importance of Formal Deeds and Agreements

The internal governance of any shared or complex structure must be formalised through expertly drafted documents. For partnerships, a Partnership Agreement is essential to govern partner relationships and dispute resolution. For companies, a Shareholders Agreement is critical to managing decision-making powers and the transfer of shares. For a trust, the Trust Deed is the absolute governing document. Without these foundational legal documents, disputes can quickly escalate to costly and protracted litigation.

Regulatory and Licensing Obligations

While the structure is nationally determined, the operation is regulated locally. Your business must comply with Queensland legislation, such as the Retail Shop Leases Act 1994 (Qld) if you lease retail premises. In addition, local council requirements and any relevant industry licensing obligations (for example, in trades or financial services) must be met regardless of your chosen structure.

Coordinating Legal and Accounting Advice

The commercial landscape demands dual expertise. Your lawyer is essential for advising on liability, commercial agreements, and asset protection. Your accountant is essential for advising on tax efficiency, deductions, and financial compliance. These two advisors must collaborate to ensure your chosen structure serves both your legal and financial interests.

Securing Your Business Foundation

The legal structure of your business is your foundation, not an afterthought. It drives your liability protection, compliance, and tax strategy. Because there is no one-size-fits-all solution, the choice between Sole Trader, Partnership, Company, and Trust must align with your unique risk profile and long-term goals.

ABKJ Lawyers has decades of experience advising Queensland businesses on commercial law. We guide you through the complexities of business structures to ensure you’re set up for maximum asset protection and operational flexibility.

Contact us today to discuss your business goals and ensure you start your journey on the right legal footing. Enquire online or call us on (07) 5532 3199 to speak with a commercial law professional.

Frequently Asked Questions (FAQs)

What is the easiest business structure to set up?

The Sole Trader is the easiest and cheapest, requiring only an ABN and, if necessary, a registered business name.

What’s the difference between a Sole Trader and a Company?

The key difference is legal identity. A Sole Trader is personally liable, while a Company is a separate legal entity with limited shareholder liability.

Do I need a written partnership agreement?

Yes. While not legally required, a written agreement is essential for resolving disputes, setting out management duties, and defining how profits and assets are divided if the partnership ends.

Can I change my business structure later?

Yes, but it is generally a complex and costly process, involving new registrations, asset transfers, and potential Capital Gains Tax (CGT) consequences.

Does a company structure protect my personal assets?

Generally, yes. A company provides limited liability protection, but this can be lost if you give a personal guarantee or breach your director’s duties.

Who should I speak to before deciding on a structure?

Get legal advice from both a Commercial Lawyer and an Accountant. The lawyer advises on liability and legal deeds; the accountant advises on tax efficiency and compliance.