The structure you choose for your business can have a range of knock on impacts – from tax considerations to the complexity of record keeping. For those operating in the building industry there are some very specific things to consider.
In this article, we cut through the noise and compare the core benefits of four common business structures used by builders and tradies: sole trader, partnership, company, and trust structure.
A sole trader structure is owned and run by a single person, with the owner taking personal responsibility for all business debts and obligations. This structure is straightforward to set up and manage, but the owner is personally liable, potentially risking personal assets in case of business failure.
Operating as a Sole Trader is perfectly ok if you’re single, don’t have a whole lot of assets to your name, don’t have employees and you’re not doing a whole lot of work in the industry – maybe you’ve just started out and want to keep things simple. That’s probably fine, but we wouldn’t recommend operating as a sole trader if life and your business becomes more complex.
A partnership involves two or more individuals sharing profits and responsibilities, with each partner personally responsible for the business’s debts and obligations. This structure is relatively easy to set up and manage at a regulatory level, however with partners sharing the income, workload and expenses things can get messy very quickly if there isn’t a clear and documented arrangement between the partners, and good systems in place. Partners also risk personal assets in case of business failure and will be jointly liable for any debts.
For these reasons, we don’t commonly advise that builders and tradies use the partnership option.
A company is separate from its owners and is owned by shareholders, with the company responsible for all business debts and obligations. Shareholders receive profits in the form of dividends and benefit from limited liability protection – meaning if the company fails the personal assets of directors and shareholders have some protection.
Whilst they are more complex from a legal and administrative perspective, a company offers a range of tax and asset protection benefits, making them the preferred option in most situations – particularly for those operators who have or are about to grow out of the Sole Trader structure.
A trust structure is set up for the benefit of beneficiaries (usually you and your family) with assets held by the trustee and income from the trust flowing to the beneficiaries. This structure offers flexibility in asset and income distribution and potential tax benefits, but can also be complex to set up and manage, with ongoing compliance obligations.
📣 NOTE: In Queensland, there are added complications with trusts that could place your QBCC licence at risk. Because of this, you need to consult a specialist building and construction accountant to get the benefits a trust can bring whilst keeping your licence out of harm’s way.
Making the decision to change the structure of an existing business can be an expensive and time-consuming process – particularly if you’ve been operating for a while and have lots of moving parts. Compiling a quick mental list of all the things attached to your current operating entity (bank accounts, contracts, licenses, employees… etc) should be enough to make you pause and get some good advice. There are many ways of optimising your business structure but your specific circumstances and goals need to be considered, so before you rush into anything please make sure you get some specialist advice.
Choosing the right business structure for your construction company is a crucial. Get professional advice from an accountant or legal expert that knows your industry and consider your personal and business goals, business size and complexity, and liability exposure. By selecting the right structure, builders and tradies will have the strong foundations they need to protect their business and achieve their long-term goals.
If you’re not sure about your structure, feel free to book a complimentary session with one of our expert building and construction accountants to talk through your circumstances.
