Startup Law

Business structure basics: sole traders and partnerships

In Australia, business owners have the option to structure their business in a number of ways. Two such structures are partnerships and sole traders.

How a business owner chooses to structure their company will have tax and legal ramifications, and impact how important business decisions are made, and how profits and losses are shared.

If you’re not sure which structure is right for you, be sure to check out Business Victoria’s step-by-step guide or use LawAdvisor’s jobs feature to seek legal advice.

Sole traders

Business Victoria explains, a sole trader is a business structure that gives the owner of that business all the decision-making power. The owner can hire staff, and any business losses can be written off their tax from another job.

The owners of businesses that are operating as sole traders can use their individual Tax File Number when lodging their income tax return.

Sole traders need an Australian Business Number (ABN) in order to avoid having payments withheld from business clients. Such clients are required to withhold 46.5% of payments made to sole traders who do not quote an ABN.

ABN’s are compulsory if a business collects GST, which sole traders are required to do if expected or current turnover is $75,000 or over.

A sole trader owns all the business assets and is responsible for the liabilities of the business.


As the name suggests, a partnership is formed when two or more people, but at most 20, go into business together.

According to Business Victoria, there is a number of different types of partnerships.

A general partnership sees all partners equally responsible for the management of the business, and each has unlimited liability for the debts and obligations it may incur.

A family partnership is where two or members are related to one another.

Limited partnerships limit the liability of one or more of the partners for the debts and obligations of the business.

A partnership has its own Tax File Number, usually a ABN, and its own tax return. Business Victoria explains the partnership’s profits are divided among the partners as set out in the partnership agreement. Then each partner adds their share of profit or loss to their personal income tax assessment.

Gadens partner Richard Partridge says that sole trader and partnership business structures are becoming less and less common among new businesses.