Sole trader:

This is the simplest and least expensive structure to operate a business. The business owner is solely responsible for all aspects of the business including taxes, debts and losses. This structure has the least asset protection mechanism because the business owner has unlimited personal liability when it comes to debt recovery.

Company:

This is the most common structure when owners (ie shareholders) want to limit personal liability in the business. The directors (who may / may not be the owners) are responsible for the business operations and are bound by directors duties under the Corporation Act 2001.

A company is a separate legal entity with the same rights as a person (ie has the capacity to enter into a contract, incur debt, sue and be sued). The set-up and running costs are higher in comparison to a sole trader / partnership.

Partnership:

A partnership is where a number (<20) of people decides to run a business together. Similar to a sole trader, partners have a shared control and management of the business as well as personal liability for the debts of the business. Unlike a company, it is not a separate legal entity.

Partnership laws are governed by the relevant state / territory laws.

Trust:

A trust is an arrangement where a person / company (ie Trustee) is imposed a legal obligation to hold assets (eg company shares) for the benefit of others (ie Beneficiaries). The arrangement is stipulated in a trust deed where the Trustee has the fiduciary duty to act in the best interest of the Beneficiaries.

A trust is typically used for asset protection, distribution and tax purposes - if your circumstances so require.

Very often high income professionals will assume that a trust is a "must-have" by default because their friends / family / colleagues have one. This is a fallacy.

First of all, trust is an expensive exercise to set-up and operate. If your circumstances do not require it, chances are you can revisit this at a later date.

We have seen numerous healthcare professionals being up-sold a trust structure by their accountants or financial planners (by default) - only years later to be told that there is essentially no advantages nor tax benefit and that they should revert back to a sole trader.

It is important to seek sound tax advice because it may be more efficient overall to set up a trust when the time comes rather than having a structure-heavy set-up from the get go.

When deciding on a business structure, your current relational status in life do play a part. For example, someone who is currently single and not contemplating marriage or entering into a de-facto relationship in the near future may decide on a fairly straightforward business structure. However, if you have a partner, children or other dependents, you may need to consider your financial obligations with regards to them.

If you have other partners / stakeholders involved, you will be looking at a partnership or a company structure. For a company structure, it is possible for the shares to be held by each shareholder's individual private trust (as opposed to holding shares in their name). The partners / stakeholders must consider their circumstances and tax implications respectively.

When starting out, you may be relying on borrowings from friends / family or taking out a business loan as start-up capital. If you are doing the former (or have already done so), it would be prudent to have the agreed terms in writing to avoid potential disputes in the future.

Whether you have a 3, 5 or 10 year plan all mapped out or just want to get things up and running, the above questions would have provided some initial guidance. Subject to your plans, you may wish to consider a structure that suits and aligns with your plans even though it is not in the immediate future.