The structure you choose for your business should fit comfortably. A poor choice of business structure can prove painful. The most common business structures are sole trader, partnership, proprietary limited company, association and co-operative. Each has advantages, and disadvantages.
When deciding what structure to choose, you should consider taxation, type and size of business, finance requirements and establishment costs. Talk to your accountant or solicitor before you settle on a business structure.
This is the simplest and most inexpensive form of business structure to set up. As a sole trader you can trade under your own name. If you operate under another name, it must be registered under the Business Names Registration Act 2011 (Cth). Business names are administered by the Australian Securities and Investments Commission (ASIC). Visit the ASIC website to register, cancel, renew or search for a business name.
A partnership is defined by the Partnership Act 1892 (NSW) as the relationship which exists between persons carrying on a business in common with a view to profit. It's wise to have a formal written partnership agreement because it sets out each partner's responsibilities and reduces the likelihood of disputes. An agreement can also cover what happens if the structure ends or changes.
The Partnership Act (PA) allows three types:
- a partnership (‘normal partnership’),
- a limited partnership, and
- an incorporated limited partnership.
There are different requirements and features for each of these types.
The Partnership Act only requires ‘limited partnerships’ and ‘incorporated limited partnerships’ to be registered.
A ‘normal partnership’ or just simply a ‘partnership’, does not need to be registered under the Partnership Act.
Normal partnerships are a suitable structure when more than one person wants to carry on a business together but use a simpler model than a company structure.
Example: a husband and a wife may form a partnership, where one of them does the ‘front end’ work and the other looks after the ‘paperwork’ for the business.
If you’re considering a normal partnership, you should:
- read the parts of the NSW Partnership Act dealing with normal partnerships,
- discuss your circumstances with your accountant or solicitor.
A limited partnership has two types of partners – ‘general partners’ and ‘limited partners’ and their duties and liabilities vary.
General partners are responsible for the day-to-day management of the limited partnership and their liability for its debt is unlimited. There must be at least one and up to 20 general partners in a limited partnership.
Limited partners play no role in managing the limited partnership and their liability for its debts is limited to the amount of money contributed to that partnership, as recorded in the Register maintained by NSW Fair Trading. The upper number of limited partners for a limited partnership is not restricted, but there must be at least one such partner per partnership. A person can be a partner of the limited partnership without the need to get consent of any other limited partner (s.69 of PA).
Raising funds with a limited partnership is more flexible. The limited partners can contribute funds for the operation of the partnership in return for a share of its profits, without having to be involved. Essentially they are ‘passive’ investors in the limited partnership.
Limited partnerships can be used in most businesses needing to raise capital. Examples where a limited partnership might be a suitable business structure include:
- industrial or real estate developments,
- agricultural schemes,
- mining projects,
- arts, theatrical and film ventures or
- other small to medium businesses needing to raise funds in a relatively straight forward way.
Download the registration of limited partnership forms from the Fair Trading website:
Incorporated Limited Partnerships
The Partnership Act also provides for a special type of partnership, the Incorporated Limited Partnership which can be established for venture capital investment purposes under Commonwealth legislation.
Visit the incorporated limited partnerships page for more information on registering as an incorporated limited partnership (ILP).
Public Register and obligations
NSW Fair Trading is responsible for managing the Register of Limited Partnerships and Incorporated Limited Partnerships under the Act. Information on the Register is available for public inspection. Contact Registry Services on (02) 6333 1400 or freecall 1800 502 042 for information or to request an inspection.
Fair Trading can also provide information on the obligations to provide changes to a partnership. Changes include:
- name of the partnership
- address of the registered office of the partnership in NSW
- name or address of the partners
- status of a partner, from general to limited partner or vice versa, or
- limitation of the liability for a limited partner (in a limited partnership).
Limited and Incorporated Limited Partnerships must maintain a registered office in NSW which also displays the certificate of registration of the partnership. Contact Registry Services on (02) 6333 1400 or freecall 1800 502 042 for more information on registering a Limited or Incorporated Limited Partnership.
Proprietary Limited Company
A private company is a business structure formed by one or more people who want to have a business that is a separate legal entity from themselves. When you form a company, you could become an employee, director and/or shareholder of the company.
Private companies are regulated under the Corporations Law which sets out substantial obligations for company directors. Establishment and ongoing administrative costs associated with Corporations Law compliance can be high. This is why the structure is generally considered to be better suited to medium to large businesses.
The Australian Securities and Investments Commission (ASIC) has a number of resources to help you form a company.
An incorporated association is an alternative to forming a company or a co-operative for small non-profit groups. Go to the about associations page on our website for more information.