Business structures for startup founders

When you’re starting a company, it’s tempting to focus on the things that seem to matter most right away. Things like building your product, finding the right people to work with, and figuring out how to get funding.

These are all important, but there’s another piece that often gets sidelined, and it’s just as important: how you structure your business.

Choosing the right business structure early on can save you a lot of trouble later. It affects everything—how you pay taxes, how you raise money, and how you protect yourself if things go wrong.

The wrong structure could cost you time and money, or limit your ability to grow.

Here’s what startup founders need to know about business structures and how to make sure you pick the right one.

4 types of startup business structures

1. Sole Trader

A lot of people in Australia start as sole traders because it’s simple and cheap. If you’re a sole trader, you and your business are legally the same.

You don’t need to set up a separate entity, and there’s no complicated paperwork beyond getting an Australian Business Number (ABN). You report your business income as part of your personal tax return.

But this simplicity comes with risks. As a sole trader, you’re personally responsible for everything your business does.

If your business runs into debt, your personal assets—your house, your car, your savings—are on the line. There’s no separation between what belongs to you and what belongs to the business. If the business fails, you could lose everything.

Being a sole trader also limits your ability to grow. It’s harder to bring in outside investment because investors prefer a formal company structure where they can own shares and have legal protections.

Sole trader structures work well for people who are testing an idea, freelancing, or running a small, lifestyle business. But if you’re serious about building something that scales, you’ll need to move beyond this setup.

And don’t forget that if your business makes more than $75,000 a year, you’ll need to register for Goods and Services Tax (GST). If you hire employees, you’ll also have to deal with taxes and superannuation for them.

Being a sole trader may start simple, but it gets more complicated as you grow.

2. Partnership

If you’re starting a business with one or more co-founders, you might think a partnership is the logical next step.

In a partnership, the ownership and responsibility for the business is shared among the partners. There are three main types of partnerships:

• General Partnership – All partners share management duties and have unlimited liability for the business’s debts.
• Limited Partnership – General partners manage the business and have limited liability, while limited partners are passive investors with no management role.
• Incorporated Limited Partnership – Partners can have limited liability, but at least one general partner must have unlimited liability and is personally responsible if the business can’t meet its debts. Partnerships are flexible and easy to set up. But they can also be risky.

Without a solid partnership agreement—a written document that outlines how decisions are made, how profits are shared, and what happens if a partner wants to leave—things can go bad quickly.

Disagreements between partners can end the business, and in the worst case, you could be personally responsible for a debt you didn’t cause. Like sole traders, partnerships don’t protect your personal assets if the business fails.

Many founders start with a partnership and then move to a more formal structure once the business starts to grow.

3. Company

For most Australian startups that plan to grow, setting up a company is the best option.

When you form a company, you create a separate legal entity. The company owns the business assets and is responsible for its debts. If the business fails, your personal assets are protected—you won’t lose your house just because the business did poorly.

Setting up a company is more complicated than being a sole trader or partnership. You need to register the company with the Australian Securities and Investments Commission (ASIC). There are fees to pay and forms to file, but the protection you get is worth it.

Once you have a company, it can own assets, sign contracts, hire employees, and borrow money, all under its own name.

It’s also much easier to raise money because investors can buy shares in the company and know their investment is protected by the company’s limited liability.

There are two main types of companies in Australia:

• Proprietary Limited companies (Pty Ltd)
• Public companies

Most startups choose proprietary limited companies because they’re simpler and don’t have the same regulatory requirements as public companies.

A proprietary limited company can have up to 50 shareholders, and you don’t have to publicly disclose as much information about your finances.

But running a company does come with more obligations. You’ll need to file annual reports, keep detailed financial records, and hold formal meetings.

If you have shareholders, you’ll also need to be transparent about how the business is run.

It costs more to set up and maintain a company, but if you’re serious about growing your business, it’s usually the best choice.

4. Trust

Some Australian businesses use trusts to protect their assets or manage their tax obligations.

A trust is a legal structure where a trustee (which can be a person or a company) holds assets for the benefit of others, known as beneficiaries.

An example of a startup structured as a trust could be a family-owned tech startup where the founders want to keep control of the assets within the family and manage wealth distribution among future generations.

One benefit of trusts is that they allow you to distribute income to beneficiaries in a way that can minimise tax.

But trusts are complex and not commonly used by startups. Investors tend to avoid businesses that use trusts because the ownership structure can be unclear and it’s harder to raise capital.

Running a trust also involves a lot of paperwork and can be expensive to maintain.

If you’re thinking about using a trust, make sure you get advice from an accountant or lawyer who understands the full picture. In most cases, a company structure will be easier and more effective for scaling.

Picking the right structure

There’s no one-size-fits-all solution for choosing a business structure, but there are a few key things to keep in mind.

• Liability: If you’re in an industry with high risks—where lawsuits or debts are likely—it’s smart to choose a structure that protects your personal assets. Sole traders and general partnerships don’t offer this protection. Companies do.

• Taxes: Different structures are taxed in different ways. Sole traders and partnerships report business income as part of their personal tax returns, while companies pay corporate tax. Companies also offer more opportunities for tax planning, especially as your business grows.

• Raising Money: Investors prefer companies. Sole traders and partnerships make it hard to raise money because there’s no formal way to give investors ownership in the business. Companies, especially proprietary limited companies, are built to issue shares and bring on investors.

• Flexibility and growth: If you plan to scale, a company gives you the most options. You can bring in investors, issue shares, and eventually take the company public. It’s more complicated than a sole trader or partnership, but it’s the best choice if you’re aiming for growth.

• Cost and complexity: It’s true that companies are more expensive to set up and require more paperwork to maintain. But if you plan to grow and take on investors, the protection and flexibility they offer make them worth the investment.

Changing your startup business structure

Your business structure isn’t set in stone. As your company grows, you may need to change your structure to bring in new partners, raise capital, or protect yourself from risk.

Many founders start as sole traders or partnerships to test their ideas, but move to a company structure once the business gains traction.

Switching structures can be expensive and complicated, especially if you have to transfer assets or reorganise ownership.

In some cases, you could face capital gains tax or stamp duty. Before you make any changes, it’s a good idea to talk to an accountant or lawyer to understand what’s involved.

Final thoughts

Choosing the right structure is one of the most important decisions you’ll make as a startup founder in Australia. It affects your ability to manage risk, raise money, and scale your business.

Don’t make this decision alone—talk to an accountant or lawyer who understands the details and can help you pick the best option based on your goals. A little time spent getting advice now can save you from big problems later on.

If you’re serious about building a high-growth startup, setting up a company gives you the best chance of success. It offers protection, flexibility, and the ability to raise money—all essential for long-term growth.