Understanding Business Structures: What’s Best for Australian SMEs?

Introduction: Why Structure Matters for SMEs

In Australia, small and medium-sized enterprises (SMEs) account for over 97% of all businesses, employ more than 5 million Australians, and contribute upwards of $700 billion to GDP (ASBFEO, 2023). With such a vital role in the economy, the way these businesses are structured has significant implications.

Your business structure isn’t just a legal label. It influences:

• How much tax you pay.

• Whether your personal assets are protected.

• How you bring in investors or partners.

• How smoothly your business transitions to the next generation.

  
  

As Jordan Arvanitakis from CFG Chartered Accountants explains, SMEs can thrive by making the right structural choices — and struggle when structures aren’t aligned to strategy. This article explores the four main options available in Australia — sole trader, partnership, company, and trust — with real examples, statistics, and expert insights to help business owners decide what works best.

📌 Best for: Early-stage businesses, low-risk sole operators, and microbusinesses with minimal overheads.

The Four Main Business Structures in Australia

1. Sole Trader – The Simple Start

A sole trader is the most common entry point for small business owners, tradies, and freelancers. In fact, 61% of Australian SMEs operate as sole traders (ATO, 2023).

Advantages

• Easy and inexpensive to set up.

• Minimal compliance and reporting.

• Full control of profits and decisions.

Disadvantages

• Unlimited personal liability — your home and savings are at risk if debts arise.

• Income taxed at personal rates (up to 45%).

• Limited ability to attract investors or scale.

Case Example

A Sydney-based personal trainer began as a sole trader. With income under $80,000, tax was manageable and compliance simple. But when earnings grew above $200,000, she faced a 45% marginal tax rate. By transitioning into a company, she reduced tax to 25% and gained liability protection.

2. Partnership – Shared Resources and Risk

   
   

A partnership allows two or more people (up to 20) to run a business together. It’s common for family businesses, professional practices, or joint ventures.

Advantages

• Simple to establish and relatively low cost.

• Combines skills, capital, and networks.

• Income split across partners, potentially reducing tax.

Disadvantages

• Joint and several liability — each partner is responsible for all debts of the partnership.

• Disputes can occur without a clear partnership agreement

• Limited growth options compared to companies.

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Case Study

Two physiotherapists in Brisbane formed a partnership to share costs and clients. Initially successful, problems arose when one partner faced unrelated financial issues, exposing the entire practice to liability. This highlighted the importance of both legal agreements and considering limited liability structures.

📌 Best for: Family-owned businesses and professional services firms where collaboration is central

3. Company – Growth and Protection

   
   

A company is a separate legal entity, distinct from its owners (shareholders) and managers (directors).

Advantages

• Limited liability — protects personal assets.

• Attractive flat corporate tax rate of 25% for base rate entities.

• Easier to raise capital through shares.

• Enhanced credibility with banks, clients, and investors.

  
  

Disadvantages

• Higher setup and compliance costs.

• More complex reporting requirements (ASIC, ATO).

• Directors can be liable for negligence or breaches.

  
  

Industry Insight

As of 2023, over 875,000 companies operate in Australia — a growing number as SMEs mature and seek investor funding.

Case Study

A Melbourne-based technology start-up began as a partnership. When venture capital became an option, investors required a company structure for liability and shareholding. Incorporating as a company attracted $1.5M in funding and set the foundation for scalable growth.

📌 Best for: SMEs looking to expand, attract funding, or separate personal and business liabilities.

4. Trust – Asset Protection and Family Planning

   
   

A trust involves a trustee managing assets on behalf of beneficiaries. This is a popular structure in family businesses and intergenerational wealth planning.

Advantages

• Strong asset protection.

• Flexibility in distributing income for tax planning.

• Suitable for succession and estate planning.

  
  

Disadvantages

• Complex and expensive to establish.

• Trustees carry significant legal obligations.

• Less suited for investor-backed high-growth businesses.

  
  

Case Study

A Perth-based hospitality group restructured into a discretionary trust to protect assets and manage income across family members. This not only reduced tax liability but safeguarded wealth for future generations.

📌 Best for: Family-owned businesses, asset-heavy operations, and those prioritising wealth protection.

Transitioning Over Time – Structures Evolve

Your first choice doesn’t need to be permanent. Many businesses evolve as they grow.

Example

A regional retail business in Queensland began as a sole trader, transitioned into a partnership when siblings joined, and later incorporated as a company once turnover passed $2M. A family trust was then established for succession.

👉 The lesson? Review your structure regularly — particularly when revenues grow, risk increases, or new opportunities emerge.

Practical Guidance for SMEs

• Seek Professional Advice: Accountants and legal advisors can identify the best fit for your circumstances.

• Document Clearly: For partnerships and trusts, detailed agreements prevent disputes.

• Think Long-Term: Choose structures that align with growth, succession, and exit strategies.

• Review Annually: Ensure your structure still serves your business goals.

Conclusion

Jordan Arvanitakis sums it up:

“There’s no one-size-fits-all answer when it comes to SME business structures in Australia. Each option — sole trader, partnership, company, or trust — has unique advantages and challenges. The key is to choose (and evolve) the structure that aligns with your financial goals, risk profile, and long-term vision”.

By treating structure as a strategic business decision — not just an administrative one — SME owners can safeguard assets, optimise tax, and create a platform for sustainable growth.

As Jordan Arvanitakis from CFG Chartered Accountants explains, the advice is clear:🔑 Choose wisely. Review often. Build a structure that supports your business — today and for the future.

At CFG Chartered Accountants, we’ve guided countless SMEs through structural decisions that protect assets, reduce tax burdens, and enable growth.

📞 Want to review your business structure?

Reach out to Jordan Arvanitakis | CFG Chartered Accountants on 03 9863 6997 for tailored advice.