Ready, set, start up!.

Last year, 10 Australian start-ups made the Global Fintech100. Behind great success there is always great planning. It is vital to choose the right structure. It can impact:

  • taxes you pay;
  • personal liability;
  • attractiveness to investors; and
  • control over the business.

This is the first of a 2-part series on start-ups. In this series, we will discuss:

  • business structures (Part 1); and
  • employee share scheme (Part 2).

Going solo

A sole trader is a business owned and operated by an individual, personally responsible for all aspects of the business, including liabilities.


  • Easy to set up and change business structure if your start-up grows.
  • Sole control over assets and business decisions.


  • Personally responsible for debts and liabilities (eg your family home can be seized to pay your debts).
  • Personally liable to pay business taxes.
  • Harder to access working capital as such structures are unattractive to investors.
  • The business does not live on after the death of the sole trader.

It takes 2 (or more) to tango

A partnership is formed by 2 or more people (maximum of 20) who carry on the business together. Partners owe fiduciary duties to each other and to the partnership. Partnerships are governed by state or territory legislation.


  • Relatively easy to set up.
  • Each partner contributes skills, experiences and resources.
  • Greater borrowing capacity and access to working capital.
  • Shared control and management of the business with other partners.
  • Each partner pays tax on their share of the partnership


  • Partnerships do not have a separate legal status and therefore partners are jointly and severally personally liable for the debts.
  • Each partner is an agent of the partnership and liable for actions by other partners
  • Profits are shared among the partners in the same way as sole traders.
  • The partnership dissolves each time a partner leaves and it is difficult to value partnership assets.

In good company

A company is a separate legal entity which can own property, operate a business, incur debt, sue or be sued. Companies provide for the separation of ownership (shareholders) and management (directors and employees). Directors have duties to the company.


  • Liability of the shareholders is limited.
  • Attractive to investors as ownership can be easily transferred.
  • Favourable taxation rates.
  • Access to a wider pool of working capital and skilled workforce.


  • Somewhat complex and expensive business structure to establish and maintain
  • Reporting obligations to ASIC.
  • Directors can be held liable for breaches of the Corporations Act 2001 (Cth).
  • Profits distributed to shareholders are taxable.

Before determining which business structure is right for your business, you should seek advice from a Bespoke corporate lawyer.

Get in touch about this article

Commercial & Corporate

Posted on: 21 March 2018