Factors Influencing Legal Structure

The three factors that influence the choice of legal structure are size, finance required, and ownership / control.

These 3 factors are all interrelated and overlap. For example, a larger business (size) would require more funds (finance) to establish, possibly requiring owners to sell part ownership (equity) to raise funds, thus foresaking some ownership and control over the firm.

Size:

Size as measured in level of sales revenue / productive capacity.

As demand / sales increases, so the business also must grow.

To meet higher levels of demand, an owner may need to change the legal structure of the firm to minimise personal risk and allow business to fully grow to its potential.

New plant / equipment, new contract for supplying larger order—these may require the injection of more funds.

This additional finance might require more partners or the establishment of a private company to invite private shareholders.

Eventually, private companies may be growing so rapidly that they may require even more equity to grow, and float their share on the ASX (Public Company)

Finance: 

The legal structure of a business has direct impact on the ability to finance operations.

Conversely, the level of finance required by a firm to enter a market will determine the legal structure adopted by the owners.

Firms with a low cost of entry can commence as a Sole Trader / Partnership. As soon as the firm requires large capital investment (in relation to owner’s personal assets), then the owners must adopt limited liability legal structure.

Finance is limited for unincorporated firms (limited to personal assets).

Incorporated firms obtain funds easier (less risk of loss—limited liability).

Bank loans, venture capital firms, selling shares on the share market are all ways that growing businesses can finance their operations for growth. 

Ownership / Control:

Different legal structures bring different levels of control for owners.

Owners must consider the desired level of control over business direction / operations when adopting legal structures.

Full control obtained only with Sole Trader (very limited in potential). Partnerships have distributed control (and are still limited in potential)

Private Companies afford a high degree of control; owners can personally invite shareholders that may not desire control over the company, restrict voting rights at board meetings.

Public Companies have thousands of shareholders, each with voting rights to determine members of the Board of Directors (that determine the direction of the firm). Large shareholders can sway direction of firm (50% ownership results in control)

The decision to 'go public' and offer shares via an IPO is contingent upon economic and financial conditions. In poor conditions, there are less IPOs as less investors are excited about buying shares. As conditions improve, more IPOs are floated to take advantage of the optimistic conditions.

See this link for advice from business.gov.au on these proposed changes to business structure.