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What legal structure is best for my small business?
Choosing the Right Legal Structure for Your Small Business in NSW
One of the first decisions every business owner must make is selecting the right legal structure. The structure you choose affects tax obligations, liability, decision-making control, and compliance requirements. Here’s a breakdown of the four main business structures in New South Wales (NSW) and their legal implications.
It is important to note that at ALA Law we can only provide advice about the legal structures, we can not provide financial or tax advice as to the financial suitability of each option. We would work with your chosen financial professional to help you get the best outcome!
1. Sole Trader
✔ Simple and low-cost setup – easy to register an ABN.
✔ Full control over business decisions.
✔ Personal liability – the owner is legally responsible for all debts and losses.
✔ Taxed at individual income tax rates.
2. Partnership
✔ Owned by two or more people who share profits and responsibilities.
✔ Partnership agreement recommended to avoid disputes.
✔ Partners have joint liability for debts, meaning personal assets can be at risk.
✔ Profits are taxed at each partner’s individual tax rate.
3. Company (Pty Ltd)
✔ A separate legal entity from its owners, reducing personal liability.
✔ Higher setup and compliance costs (ASIC registration, annual fees, reporting obligations).
✔ Company pays corporate tax (currently 25% for small businesses).
✔ Directors must comply with Corporations Act 2001 (Cth).
4. Trust
✔ Provides asset protection and tax benefits.
✔ More complex and costly to set up and maintain.
✔ The trustee (either an individual or a company) manages assets for beneficiaries.
✔ Income can be distributed in a tax-effective way.
How ALA Law Can Help
Choosing the right business structure is crucial for long-term success. At ALA Law, we specialise in small business legal advice, ensuring you select the best structure for growth, asset protection, and tax efficiency. Contact us today for expert guidance.
