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Choosing the Right Structure of Your Business

By 24/08/2023September 6th, 2023No Comments
choosing the right structure of your business - different business structures and advantages

Australia offers varied business structures; sole traders, partnerships, companies, trusts. Choosing wisely delivers tax benefits, reduced liability, investor appeal, and exit strategy. These structures, explored comprehensively, shape entrepreneurial paths. Sole traders offer simplicity but high personal liability. Partnerships entail collaboration and shared debt. Companies shield with legal distinction, yet demand compliance. Trusts provide tax advantages and trustee protection. 

This article covers at length the different business structures and advantages they can offer, so business owners can make informed decisions about what is most suitable for them. 

Sole trader

This is the simplest form of business structure and the least costly to set up. A sole trader is the only owner and has full control over the business. If you become a sole trader, you assume responsibility for any debts or losses. Since it’s not a separate legal entity, there’s the potential to lose your personal assets in the case of bankruptcy or potential creditor litigation against your business (yourself).

As a sole trader, you are taxed on profits at personal tax rates. So there’s a tax-free threshold of $18,200 on the income you earn as a sole trader. Also, as a sole trader, you get a 50% discount on capital gains tax (CGT) if you sell assets that have increased in value after holding them for at least 12 months. This applies to family and discretionary trusts but not companies.

Although a sole trader business structure is the easiest and least expensive to set up, it doesn’t offer the tax or liability benefits of other business structures, especially if you plan to grow the business over time. It also isn’t suitable if you want to attract investors or sell the business in the long term.

Partnership

Like a sole tradership, a partnership is not a separate legal entity. A partnership can be between 2 and 20 people who go into business together, and they can be general or limited liability, which impacts the liability of the partners. In a general partnership, each partner is jointly and severally liable for 100% of partnership debts.

Each partner pays tax based on the partnership’s profits and pays on their personal tax return, so this structure doesn’t offer tax benefits as a company or trust can. However, an annual partnership tax return must be filed, including the partnership’s income and expenses. Also, the partners have personal liability for any debts the partnership owes.

A key point of setting up a partnership is creating a partnership agreement. This can help to avoid future disagreements by outlining the partner roles, what is expected and an operational overview. It can also include the conditions and process for dissolving the partnership. Two of the biggest downsides of partnerships are the potential for disagreements between partners and the difficulty of adding or removing partners.

This structure can work when two trusts or companies operate together. It’s not suitable for two sole traders to run a partnership, as it has unlimited liability for all partners. Considering the benefits of other structures, a partnership is the least preferable. 

Company

One of the big advantages of the company structure (proprietary limited) is that it’s a separate legal entity, so shareholders are not personally liable for the company’s debts. Any successful claim against the business will be paid out through the company’s assets and cash reserves.

Another advantage of a company structure over a sole tradership or partnership is the tax rate. For base rate entities (below the income threshold of $50 million aggregated turnover), there is a flat tax rate of 25% on profits (30% for companies earning with over $50 million annual revenue). In comparison, the highest marginal income rate for sole traders and partners is 45%. In addition, companies can offset the tax losses from one company against profits made by another. There’s also the potential to carry losses forward from the past into more profitable future years.

A company structure appeals to investors due to limited liability and tradable shares. All company details must remain current on the public ASIC register. As a legal entity, a company persists until dissolution, allowing succession planning for shareholder or director changes.

On the downside, there are higher set-up and admin costs and compliance requirements associated with starting a company. Company directors need to be active in the business and understand their legal obligations and compliance requirements to avoid liability for breaching duties.

Despite these requirements, sole traders can benefit from starting a company if they want a lower tax rate and want to attract investors and scale.

Family and Discretionary Trust

A trust can provide tax advantages, flexibility and liability protection. A discretionary trust enables a person or the persons managing the trust to choose the trust beneficiaries and the percentage of the trust distribution they will receive. For example, if there are two people in the trust, it doesn’t have to be divided 50/50. One beneficiary could receive 90% and the other 10% to minimise their tax obligations (based on their marginal tax rates). 

Family trusts are discretionary trusts used to hold a family’s assets, including a family business. One or more family members can manage the trust for the entire family. The trustee or trustees determine the benefits for family members.

A trust is created using a legal document called a trust deed which outlines the terms, rules and conditions for creating and managing the trust.

One of the advantages of a discretionary trust is that it enables a person to hold assets without being the legal property owner. If a creditor pursues a beneficiary’s assets, they are usually protected because the trustee legally owns the asset and not the beneficiary.

Unlike a company, a discretionary trust does not have to pay income tax. Instead, the trust beneficiaries pay tax on their share of the trust income when they pay personal income tax (at their marginal tax rate). In a family trust, the trustee can distribute assets to family members to minimise the overall tax paid by the family.

On the downside, there are costs associated with setting up a trust, and the trustee can be liable for debts (unless the trustee is a company). Also, trusts are not set up to attract investors and are not designed to keep profits beyond the financial year. If the beneficiaries don’t receive the trust’s profit each year, the trust will be taxed heavily at top marginal tax rates.

Using a holding company with trust

This can be used to defer tax and further protect against personal liability. One potential scenario with this structure is to have a family trust own 100% of a holding company (Pty Ltd). The holding company can own operating businesses beneath it. The holding company – which doesn’t trade as a business – owns shares in the operating businesses. Profits from the operating businesses are paid into the holding company, where the cash can accumulate.

Because excess cash accumulates in the holding company, the assets of the operating business are protected. This also allows profits to be retained – which is not possible with a trust by itself – to grow the business and fund working capital. When dividends are paid out, they will represent income for the trust in the year the dividend was paid. This can then be allocated to beneficiaries on a discretionary basis.

Choosing the right business structure

With several types of business structures available, you need to consider the pros and cons of each one, whether you’re setting up your new business or changing the structure of your existing one. 

Here’s an overview of some of the key differences between business structures.

Source: https://business.gov.au/planning/business-structures-and-types/business-structures/choose-your-business-structure

At Equil Advisory, we can help you understand the big picture and choose the best structure for your current and future needs. As experts in this area, we work with business owners at all stages, reviewing their structure in line with their personal circumstances and long-term objectives. 

Get in touch with a member of our expert team to review your current business structure or discuss the potential benefits of changing to a different business structure.

Clare Connell

Practice Manager

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How did you end up at Equil Advisory?
After I travelled to Europe and ran out of all the Money - I knew it was time to get back to work.

When did you start at Equil Advisory?
Around the time I ran out of money during my Europe trip.

What do you do at Equil Advisory?
I’m the Entertainment Warden.

What do you do when you aren’t at work?
Run, walk, chill, drink at THE BAAAAY live love laugh the BAAAAYY.

What is something not everybody knows about you?
Besides the Bay? Accounting is my second passion.

If you had to apply for a reality TV show what would it be?
Byron Baes.

What would your last meal be?
100% a juice cleanse.

Cats or dogs?
Zara.

Clare Connell

Practice Manager

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How did you end up at Equil Advisory?
I originally started working here in 2020 as an Accountant but left to travel and take a break from Accounting. Now, a year later I’ve come back as the Practice Administrator.

When did you start at Equil Advisory?
January 2023.

What do you do at Equil Advisory?
Anything and everything to do with the office and making sure the team is happy and processes are working efficiently.

What do you do when you aren’t at work?
Catch up with friends, go on trips away, play tennis, go to the beach, shop!

What is something not everybody knows about you?
My childhood revolved around dancing and being in theatre plays and musicals.

If you had to apply for a reality TV show what would it be?
I have always wanted to be on The Block.

What would your last meal be?
Sushi.

Cats or dogs?
100% Dogs.

Alex Talia

Senior Business Services Accountant

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How did you end up at Equil Advisory?
Being a personal accountant for my girlfriend wasn’t a legit career!

When did you start at Equil Advisory?
Around the time I started bulking up for the gym!

What do you do at Equil Advisory?
Just here for the vibes!

What do you do when you aren’t at work?
Give finger-hearts to my bros!

What is something not everybody knows about you?
Part-time modelling, you can see me on the front cover of various issues of Sydney Morning Herald!

If you had to apply for a reality TV show what would it be?
Love Island, bro!

What would your last meal be?
Cookie!

Cats or dogs?
Nah, can’t stand either!

Alex Talia

Senior Business Services Accountant

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How did you end up at Equil Advisory?
Having worked in the family business and doing the bookkeeping as a teenager, an accounting degree was the clear next step. My career initially took me to chartered accounting firms and then moving into commercial accounting for more exposure, I knew my move back into an accounting firm had to be the right fit. The supportive team and management at Equil was a clear choice for me.

When did you start at Equil Advisory?
June 2022.

What do you do at Equil Advisory?
A large part of my role is CFO focused, I aim to support our clients through the different stages of the business by implementing strategies and processes to guide them in making the right business decisions.

What do you do when you aren’t at work?
Watch sport and binge tv shows.

What is something not everybody knows about you?
I love fishing and hope to one day in the future be retired and do nothing but fish.

If you had to apply for a reality TV show what would it be?
Big Brother.

What would your last meal be?
A medium rare a5 wagyu tomahawk steak.

Cats or dogs?
Dogs.

Albert Tan

Business Services Accountant

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How did you end up at Equil Advisory?
I was looking for a new place to clear my throat and break the office silence.

When did you start at Equil Advisory?
When I was assured that there would be another Malaysian member of the team.

What do you do at Equil Advisory?
Play hide-and-seek in the bathroom.

What do you do when you aren’t at work?
Go to the gym.

What is something not everybody knows about you?
I don’t know how to pronounce geography properly.

If you had to apply for a reality TV show what would it be?
Survivor.

What would your last meal be?
Macaroni and cheese with milk.

Cats or dogs?
Neither.

Gaurav Shrestha

Business Services Accountant

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How did you end up at Equil Advisory?
Everyone I knew had caught on to my long stories, decided to go find new people who had never heard them before.

When did you start at Equil Advisory?
When I heard they were having a massive Christmas party.

What do you do at Equil Advisory?
Go off on tangents and ask people if they’re good.

What do you do when you aren’t at work?
I would be out hunting ghosts or singing while playing the guitar.

What is something not everybody knows about you?
No drop of rain has ever landed on my head.

If you had to apply for a reality TV show what would it be?
Masterchef Australia.

What would your last meal be?
Double beef burger and a steak on the side.

Cats or dogs?
Cats and dogs are the most popular pets in the world. Cats are more independent and are generally cheaper and less demanding pets. Dogs are loyal and obedient but require more attention and exercise, including regular walks. But what I actually really prefer, I guess it actually depends… -character limit reached-

Albert Tan

Business Services Accountant

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How did you end up at Equil Advisory?
I have always wanted to be an accountant due to the influence of my family as most of them are accountants. I joined Equil Advisory as it offered me a different opportunity to work on compared to other accounting firms as well as allowing me to develop different skills.

When did you start at Equil Advisory?
28th February 2022.

What do you do at Equil Advisory?
My role at Equil Advisory includes tax compliance work and assisting client in their day-to-day business with EA’s outsourced CFO function.

What do you do when you aren’t at work?
Spending time with my wife, talking to my family or reading light novels.

What is something not everybody knows about you?
Love spicy food even though I can’t handle it at all.

If you had to apply for a reality TV show what would it be?
Voice actor in any cartoon shows.

What would your last meal be?
Roti Telur Bwang.

Cats or dogs?
Love cats and dogs equally.

Pragti Sharma

Business Services Accountant

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How did you end up at Equil Advisory?
I wasn’t allowed to give free food to my friends at Oporto anymore.

When did you start at Equil Advisory?
When I completed shopping for my professional wardrobe.

What do you do at Equil Advisory?
Listen intently to people’s conversations and mimic them during our lunch breaks.

What do you do when you aren’t at work?
Finesse my Australian accent.

What is something not everybody knows about you?
South India is my favourite part of India.

If you had to apply for a reality TV show what would it be?
Fear Factor.

What would your last meal be?
Steamed dumplings.

Cats or dogs?
Both!

Pragti Sharma

Business Services Accountant

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How did you end up at Equil Advisory?
When I was a child, dealing in numbers was never a problem! But still, I passed mathematics on the verge.

Gradually, I realized that numbers are in my favour and so are the associated calculations. As a result, I pursued Accounting with Finance, which helped me develop an interest in accounting systems. Further, securing a career in accounting lead me to make my way to EQUIL.

This is my first professional job, and I am too excited to be a part of the team.

When did you start at Equil Advisory?
It’s my second week at Equil! I started on 10th February 2022.

What do you do at Equil Advisory?
My role at Equil Advisory involves performing tax compliance operations along with outsourced CFO functions and assisting the clients regularly with their day-to-day tax related queries.

What do you do when you aren’t at work?
Most of my time goes out at talking to my friends and family, back home in India. If, I still have more to go, Netflix is my best thing.

What is something not everybody knows about you?
I am only serious for who I want to be and what I want to achieve.
On the other hand, those who think I am serious, shouldn’t know, the time I tried the 30-day weight lost diet, I lost another 30 days!
I can never stick to a diet!!!!

If you had to apply for a reality TV show what would it be?
Fear factor - Khatron ke Khiladi.

What would your last meal be?
Anything and everything that I get hand-cooked by my Mommie.

Cats or dogs?
Dogs, only to watch them play from a distance.

Sabrina Truong

Business Services Accountant

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How did you end up at Equil Advisory?
I wanted to see how people who eat unhealthy actually live.

When did you start at Equil Advisory?
Just as the second lockdown was about to begin, so I didn’t have to talk to people in person.

What do you do at Equil Advisory?
Eat raw veggies and perfect my American accent.

What do you do when you aren’t at work?
Driving around Sydney for the best fast food places.

What is something not everybody knows about you?
I eat banana bread with chopsticks.

If you had to apply for a reality TV show what would it be?
Man vs Food.

What would your last meal be?
Deep fried chicken and chips with extra chicken salt.

Cats or dogs?
Cats!

Sabrina Truong

Business Services Accountant

Email Me Linkedin

How did you end up at Equil Advisory?
My dad is a bookkeeper, so it was natural for me to choose accounting as a degree. Accounting allows me to help others grow their businesses and achieve their goals, which is something I am passionate about. I joined Equil Advisory because it is not like your typical accounting firm. I also wanted to be part of a team that is supportive and provides the opportunity for me to develop and grow my skills.

When did you start at Equil Advisory?
July 2021.

What do you do at Equil Advisory?
A large part of my role is focused on tax compliance and the other part is dedicated to building client relationships so that I can better help our clients with EA’s outsourced CFO function.

What do you do when you aren’t at work?
You would find me watching Netflix, working out, or hanging out with friends/family.

What is something not everybody knows about you?
I am learning Korean.

If you had to apply for a reality TV show what would it be?
Super Trio Game Master.

What would your last meal be?
Pepperoni Pizza.

Cats or dogs?
Dogs!

Gaurav Shrestha

Business Services Accountant

Email Me Linkedin

How did you end up at Equil Advisory?
Growing up I was exposed to the business environment, so I always wondered about the ins and outs of the business, how it runs and how to be financially sound. This piqued my interest on business studies and further after that into accounting. I wanted to broaden my horizons, knowledge and have a sound work life balance which led me to Equil Advisory.

When did you start at Equil Advisory?
17th December 2021.

What do you do at Equil Advisory?
At Equil Advisory, we are exposed a range of work that include tax compliance, bookkeeping, tax advice, liaising with the clients and outsourced CFO functions. My work is predominately occupied by tax compliance and outsourced CFO function.

What do you do when you aren’t at work?
I’m mostly out with my cousins or friends. Binge watching series or may be hop online to play some games.

What is something not everybody knows about you?
I can speak four different languages and I love gaming.

If you had to apply for a reality TV show what would it be?
The Voice.

What would your last meal be?
Mo Mo.

Cats or dogs?
Dogs.

June Wong

Business Services Senior

Email Me Linkedin

How did you end up at Equil Advisory?
My sister got tired of me working from home and hence decided to join EA.

When did you start at Equil Advisory?
Just as the first lockdown was lifted.

What do you do at Equil Advisory?
Eat Coco Pops and telling people what I am honestly thinking.

What do you do when you aren’t at work?
Planning my next EA Team workout session.

What is something not everybody knows about you?
I am scared to sleep alone.

If you had to apply for a reality TV show what would it be?
Survivor – because I wouldn’t last a day.

What would your last meal be?
I can’t decide between all the YUM-MEE animals of the world.

Cats or dogs?
Porcupine.

June Wong

Business Services Senior

Email Me Linkedin

How did you end up at Equil Advisory?
I realised that a lot of people that work in chartered firms are not the happiest. Thus, I was looking for a place where I am happy to go to work every day. I think I found it at Equil.

When did you start at Equil Advisory?
May 2021.

What do you do at Equil Advisory?
Connecting with clients and providing them with all the support they need so they can be at ease and have confidence that they are well looked after.

What do you do when you aren’t at work?
Watching dramas at home while lying on bed.

What is something not everybody knows about you?
I actually thought of becoming an IT person and did a couple of months of IT degree before realising that I am not tech-savvy at all.

If you had to apply for a reality TV show what would it be?
Amazing Race.

What would your last meal be?
Hotpot with lots of veges, mushrooms and tofu!

Cats or dogs?
Neither.

MAKS KHAN

Director

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How did you end up at Equil Advisory?
Kapil and I were best buddies, so it was a no brainer to start here at EA.

When did you start at Equil Advisory?
Back in the day.

What do you do at Equil Advisory?
Loves to palm off work to Jennifer Harb.

What do you do when you aren’t at work?
Naps on the couch and my nightly sleep walks to bed.

What is something not everybody knows about you?
I love to boogie.

If you had to apply for a reality TV show what would it be?
The Amazing Race.

What would your last meal be?
Pork ribs with a side of bacon.

Cats or dogs?
Can’t choose, won’t choose, Nickelodeon’s CatDog.

MAKS KHAN

Director

Email Me Linkedin

How did you end up at Equil Advisory?
I loved maths and business subjects while in school and thought accounting would help me build on that passion. I joined Equil Advisory to be part of a team that allowed for a hands-on approach with regards to learning and looking after clients. Giving me the right building blocks to a successful career in accounting and business.

When did you start at Equil Advisory?
I have been with Equil Advisory since July 2017.

What do you do at Equil Advisory?
One of my core strengths is, I take my clients’ business personally. Trying to connect with clients and their needs is what helps us service them better whilst putting their minds at ease – whether it be through our Outsourced CFO function, Tax Compliance, Advice & Etc.

What do you do when you aren’t at work?
I love binging on Netflix, but other than that I love my football (soccer), even if it maybe just playing FIFA.

What is something not everybody knows about you?
I really used to be into painting, I could do it for hours. I have now replaced that with photography – I guess this is where all my creativity comes from.

If you had to apply for a reality TV show what would it be?
The Amazing Race.

What would your last meal be?
A decadent chicken parmigiana, with a side of chips and coke.

Cats or dogs?
Dogs.

JENNIFER HARB

Senior Business Services Accountant

Email Me Linkedin

How did you end up at Equil Advisory?
Google Maps brought me here from St James Station.

When did you start at Equil Advisory?
21 Jan 2019.

What do you do at Equil Advisory?
Annoying Maks, Mail, ATO phone calls.

What do you do when you aren’t at work?
Write up my jokes and who to annoy for the next day.

What is something not everybody knows about you?
I can make coffee without water!

If you had to apply for a reality TV show what would it be?
Bachelorette.

What would your last meal be?
Chinese Food or Sushi….i love sushi!!!

Cats or dogs?
Dogs.

JENNIFER HARB

Senior Business Services Accountant

Email Me Linkedin

How did you end up at Equil Advisory?
I have always been interested in business in general. During the first year of university, I didn’t have a path but as I took more of the core business classes, I came to realise that accounting is the common denominator in all business functions. You can’t tell how well a company is running without understanding the accounting side. Helping people solve their problems and achieve their business goals is a pretty rewarding feeling.

When did you start at Equil Advisory?
I started Equil Advisory in January 2019.

What do you do at Equil Advisory?
Clients want to feel like one that is valued, and timely communication is important to them. I am proactive in replying to emails and returning phone calls. I try to do my work in the most efficient manner, that is helpful to both my colleagues and our clients.

What do you do when you aren’t at work?
Hanging out with my friends, going to the gym and watching my shows.

What is something not everybody knows about you?
I once put electricity on my braces in year 8 thinking nothing would happen.

If you had to apply for a reality TV show what would it be?
I’m a celebrity, get me out of here.

What would your last meal be?
Lemon garlic chicken with a side of spicy chicken wings.

Cats or dogs?
Dogs, even though I have a cat.

CHIMENE GEAITANI

Senior Business Services Accountant

Email Me Linkedin

How did you end up at Equil Advisory?
Wanted to get away from Rob.

When did you start at Equil Advisory?
July 2018.

What do you do at Equil Advisory?
Efficiency.

What do you do when you aren’t at work?
Smoking shisha and thinking how to make my workflow more efficient.

What is something not everybody knows about you?
My feet actually touch the floor when i am seated.

If you had to apply for a reality TV show what would it be?
The Real Housewives of Western Sydney.

What would your last meal be?
Dumplings from the dodgy dumpling place, Maks and Rob love.

Cats or dogs?
Neither, they are not efficient.

CHIMENE GEAITANI

Senior Business Services Accountant

Email Me Linkedin

How did you end up at Equil Advisory?
The intricacy of business and numbers have always been of interest to me. Numbers are what we use to measure success with; they create clarity and commitment and, more importantly, create accountability. Accountability is the key to producing results - which is what I strive for here at Equil Advisory.Here at Equil Advisory, I am part of a energetic and committed team who strive for the best possible results for each and every one of our clients. I enjoy assisting numerous businesses in financial matters, as well monitored and controlled many of their day-to-day operations.

When did you start at Equil Advisory?
July 2018.

What do you do at Equil Advisory?
Working at Equil Advisory exposes us to a range of compliance work; from bookkeeping to financial reports, tax returns and advice. We are lucky to be trained in all scopes of work so that we’re able to satisfy our clients’ needs from start to end.

What do you do when you aren’t at work?
I enjoy my time at home with my little bub.

What is something not everybody knows about you?
I have an OCD on time.

If you had to apply for a reality TV show what would it be?
Big Brother.

What would your last meal be?
Pad Keo Mao from Home Thai.

Cats or dogs?
Neither.

KAPIL MAHASHETTYWAR

Managing Director

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How did you end up at Equil Advisory?
Going to the pub wasn’t a legit career.

When did you start at Equil Advisory?
I got kicked out of too many pubs so I had to find my own space to drink so I started Equil Advisory in May 2017.

What do you do at Equil Advisory?
Get in the way.

What do you do when you aren’t at work?
Hide from my kids in my home office eating all the chocolate.

What is something not everybody knows about you?
I actually have a crown.

If you had to apply for a reality TV show what would it be?
Keeping up with the Kardashians.

What would your last meal be?
Salty Steak that I can send back to the kitchen.

Cats or dogs?
Cats (I am a massive Cat person).

KAPIL MAHASHETTYWAR

Managing Director

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How did you end up at Equil Advisory?
I come from a family of businessmen, so it was only natural for myself to gravitate my career towards business. Accounting allowed me to build upon the necessary skills needed to be a successful a partner but also to assist me in starting my own business, Equil Advisory. Through my experiences in business I have learnt many things and now wish to assist my clients and team to reach their full potential.

When did you start at Equil Advisory?
May 2017, was one of the best decisions on my life to start Equil Advisory as it set the tone of implementing strategies from my past learnings. I wanted to ensure every staff member has enough empowerment and freedom to make their own decisions to run the practice in the right direction.

What do you do at Equil Advisory?
Everything! But love the personal relationships aspect of the job, I love to talk so it is easier for me to pick up the phone and have a chat with anyone.

What do you do when you aren’t at work?
Play with my sons, Memphis and Kiaan and entertain them. Lay on the couch and watch TV.

What is something not everybody knows about you?
I went to a hospitality college in manly and have a bachelors in Tourism and hotel management and I was born in India.

If you had to apply for a reality TV show what would it be?
So you think you can dance.

What would your last meal be?
Keerthi’s chicken curry.

Cats or dogs?
Dogs.