Choose your business structure
Last updated: Jan 2025
About business structures
The information we request from you when you set up your Square account can vary depending on the business structure you run. The information below will help you understand the options to choose from when you get started with Square.
Before you begin
Choosing your business structure is part of setting up your Square account. Learn more about signing up for Square in our Set up your Square account.
Types of business structures
A sole trader is the easiest business type to set up. All you really need is an ABN, and you can start earning. If your income is over $75,000 or you work in certain industries such as taxis/ride-share, you also need to register for GST. This means keeping accurate records and collecting, reporting and paying GST accordingly.
As a sole trader, you don’t need a separate tax return – you simply report your business income as part of your personal return. This means you pay the same tax rate as an individual, and you may also be eligible for benefits such as the Small Business Tax Offset. You control the business, nobody makes decisions for you, and you have the freedom to operate however you like.
As a sole trader you’re personally responsible for debts and lawsuits, should they arise. You also need a lot of discipline, especially when it comes to putting aside money for tax at the end of the year (or quarterly if using PAYG). You also need to pay your own superannuation, however, you’ve got control over how much you want to put aside.
Being a sole trader doesn’t prevent you from hiring employees or contractors to work for you, provided you follow all applicable guidelines relating to the employment of staff.
A partnership is also relatively easy and inexpensive to set up, with the main difference being you need a new tax file number for the partnership. This means you lodge a separate partnership tax return, but the partnership doesn’t pay tax on the income. Each individual in the partnership declares their share of the income in their personal tax returns.
It’s a way to share the income from a business, but it also means you share losses and control. Even though it’s not a requirement, a partnership agreement is good to have in writing, so that everyone understands their obligations and responsibilities.
A limited partnership essentially works the same way as a normal partnership, however, it often includes one person who works in the business, and another who is more of a financial partner. This is a popular business structure in the US but is still relatively new in Australia, and as such the taxation guidelines are a little murky.
This type of business usually relates to venture capital operations, for example, an entrepreneur needs capital to start their business. They find a financial partner, however that partner doesn’t really participate in the day-to-day running of the business.
Currently, Australian tax law states that a limited partnership is a tax-paying entity. So, unlike regular partnerships, the limited partnership is required to pay tax on income. Furthermore, all partners are equally liable for the debts and other liabilities. If entering into this type of arrangement, it’s definitely worth seeking legal advice first to completely understand your obligations.
A trust is a more complicated business type, but it is quite popular in Australia. It’s more expensive to set up because you need a formal deed outlining how the trust will operate. Income from a trust goes to beneficiaries, but there are several ways that income can be distributed and this affects how tax is paid.
A trust needs its own Tax File Number and must lodge tax returns. However, the income tax could be paid by the trust, or by the beneficiaries in their personal returns. The trustee may also be personally liable for tax. Again, this is a business structure where you should certainly seek legal advice to understand how it will work and who is responsible for paying tax.
A proprietary limited (or LLC) is relatively easy to set up, however, there are more complexities in record-keeping. To set up a Pty Ltd company in Australia, you need a set of bylaws, company directors, a business name, a tax file number and ABN and business bank accounts.
The benefit to operating a Pty Ltd company is the owner and directors aren’t directly liable for debts. However, the owners can’t draw money from the business unless it is in the form of wages or formal distribution of profits. As such, those funds are then subject to applicable tax laws. The company also needs to lodge business tax returns, pay superannuation for employees, and keep impeccable records.
A corporation is much the same as a Pty Ltd company in Australia, however, a corporation is much larger. Both are legal entities separate from the owners, meaning owners have limited or no liability for company debts. However, there are a few differences.
Companies are generally owned by a small number of people, whereas corporations are likely to have more shareholders. Companies are often privately owned, whereas a corporation may trade as a public entity. In addition, rather than having a couple of key owners or directors making decisions, a corporation may include a full board of directors.
Corporations also have more responsibilities in terms of record-keeping and compliance, as there is more scrutiny on them. So, if you’ve got dreams of having an incorporated company, be ready for a big learning curve, and get the right legal and financial advisors around you.
An incorporated association is an organisation incorporated under state or territory law, that is usually not-for-profit. Its structure establishes it as a legal entity separate from its individual members. You can recognise an incorporated association by the word ‘Incorporated’ or the abbreviation ‘Inc’ after its name.
An unincorporated association is one type of legal structure for a charity. Unlike an incorporated structure, an unincorporated association is not a separate legal entity from its members. It is simply the group itself, of people who have agreed to come together to pursue a common purpose, such as to establish a faith community.
An unincorporated association cannot enter into contracts in its own name, or own land, or employ people, or sue or be sued. Members of the unincorporated association do these things on behalf of the association. Members may each have individual legal liability for the association’s debts and defaults, which can lead to legal risk for those members.