Choosing the Right Business Structure – Mastin Harris Accountants

Start here: the 60‑second decision checklist

Tick what applies. The more boxes you tick, the more a “simple” structure can become risky or inefficient.

Risk + people

I have employees/contractors or public-facing risk (higher liability).
I sign contracts where something could go wrong (warranties, defects, disputes).
More than one person will own the business.
I need continuity/succession (the business should outlive me).

Money + growth

Profits are growing and I may want to retain earnings for reinvestment.
I want flexibility in who receives profits each year (e.g., family members).
I may want investors, finance, or to sell the business later.
I want cleaner separation between personal and business assets.

Tell it like it is: there’s no “best” structure. There’s only the structure that fits your risk, profit level, and plans. If your facts change (staff, contracts, profit jump), your structure may need to change too.

The main structures (quick overview)

This guide is intentionally simple. For anything unusual (investors, complex groups, multiple entities), get advice early.

Lowest admin

Sole trader – simplest setup, but you carry risk personally.

Shared ownership

Partnership – two or more owners; a written agreement is essential.

More structure

Company / Trust – more compliance, often better for risk, growth and planning.

Sole trader

One owner. Simple. You are the business for liability and tax purposes.

Pros

Simple and low cost to start and run.
Full control over decisions.
Fewer formal reporting requirements.

Cons

Unlimited personal liability (personal assets exposed).
Harder to bring in investors.
Can be less suitable for larger contracts/tenders.

Good exampleFits well

A designer/consultant with low risk, straightforward income/expenses, and a preference for minimal admin.

Bad exampleHigher risk choice

A trade business with staff and warranty/public liability risk. A company (or company + trust) is often more appropriate.

Common pitfalls

Mixing personal and business spend, weak records, and not planning for GST/cashflow when turnover grows.

Partnership

Two or more people run a business together. Simple, but the relationship and liability need to be managed properly.

Pros

Relatively simple to set up.
Shared workload, skills and capital.
Profit-sharing can match contribution (if agreed).

Cons

Partners can be personally liable (including for the other partner’s actions in many cases).
Disputes can cripple the business without a clear agreement.
Not as clean for investors/scaling.

Good exampleFits well

Two professionals share a practice with a written agreement covering profit split, decision-making, and exit terms.

Bad exampleHigher risk choice

Two friends start “50/50” with no agreement and one person controls the bank account. A company structure may have been cleaner.

Minimum standard

Get a written agreement: bank authority, drawings, assets, dispute resolution, and exit terms.

Company

A separate legal entity. Often used for higher risk businesses, employees, and growth planning.

Pros

Limited liability for shareholders in many circumstances.
Easier to add owners via shares.
Often viewed as more established for contracts.

Watch-outs

More compliance (ASIC registrations, records, director duties).
Money taken out must be managed properly (wages/dividends/loans).
Banks often still require personal guarantees.

Good exampleFits well

A building services business hiring staff and taking larger contracts with warranty risk.

Bad exampleOften overkill

A small side-hustle sets up a company “for credibility” but struggles with compliance and bookkeeping. Sole trader may have been simpler initially.

Director reality check

Directors have legal duties and record-keeping/reporting responsibilities. It is not “set and forget”.

Trust (often a discretionary/family trust)

A trust is a relationship where a trustee runs the business for beneficiaries. Powerful when right, painful when wrong.

Pros

Can provide flexibility in distributing income (subject to rules).
Useful for family groups with variable profits.
Can support asset protection and succession planning when structured properly.

Watch-outs

More setup/admin (deed, trustee obligations, annual distribution decisions).
Losses generally trapped in the trust.
Distributions must be properly documented and carried out in practice.

Good exampleFits well

A family business with fluctuating profits wants flexibility to distribute income (where appropriate), often using a corporate trustee.

Bad exampleCommon mistake

A one-person consulting business sets up a trust to “split income” but the income is effectively personal services income — the ATO can restrict income splitting in those cases.

Two simple trust rules

(1) The deed drives what you can do. (2) Year-end decisions/distributions need to be documented properly and reflected in reality.

Next steps

If you want us to recommend a structure, here’s what we’ll usually ask.

What do you do, and what can go wrong (risk profile)?
Who owns it now, and who might own it later?
Do you plan to hire staff or contractors?
Do you want to retain profits for growth, or draw profits out each year?
Do you want profit distribution flexibility (where allowed), or is it straightforward?
Do you expect investors, finance, or a future sale?

If you’d like to discuss any of the above further, please don’t hesitate to contact our office.

Australian reference sources

Primary guidance pages we use as a baseline (plus the facts of your situation).

General information only. This page is not legal or financial advice and does not consider your specific circumstances.

Back to Resources