Sole trader, company or trust: choosing a business structure
Compare sole trader, company, partnership and trust structures in Australia — tax, cost, liability and paperwork — to choose the right one for your business.
The structure you choose affects how much tax you pay, your personal risk and how much paperwork you have. Here's a simple comparison of the main options.
Sole trader
- Setup: the cheapest and simplest. You just need an ABN (our fee from $100).
- Tax: business profit is added to your personal income and taxed at your marginal rate, which can reach 45% plus the Medicare levy.
- Risk: you are personally liable for business debts.
- Good for: new or small businesses, contractors and side businesses.
Company (Pty Ltd)
- Setup: registration with ASIC, a company constitution and an annual ASIC fee.
- Tax: most small companies pay 25% on profits. You pay personal tax when you take money out as wages or dividends.
- Risk: limited liability in most cases, though directors can still be personally liable for some tax debts and if they trade while insolvent.
- Paperwork: more reporting, and company money is not your money. Taking funds out incorrectly can create large tax bills.
- Good for: growing, profitable businesses and those with more risk.
Family trust
- Lets you distribute profits between family members each year, which can reduce total tax.
- Often uses a company as trustee for extra protection.
- Higher setup and running costs, and strict rules about distributions and resolutions by 30 June.
Partnership
- Two or more people run the business together and share profits.
- Each partner pays tax on their share, and partners are usually liable for each other's business debts.
- A written partnership agreement is strongly recommended.
You can change later
Many businesses start as sole traders and move to a company or trust once profits grow. Changing structure can have tax and stamp duty costs, so it's worth planning ahead.
We set up companies, trusts, SMSFs and partnerships. Book a meeting and we'll look at your income, plans and risk to recommend a structure.
This article is general information only and does not take your personal circumstances into account. It is not financial or tax advice. Tax rules change, so please contact us before acting on it. Information current as at the date above.