Sole Trader vs Company: What’s Best for Your Business Structure?
Choosing the right business structure is one of the most important decisions you'll make when starting or growing a business. In Australia, the two most common options for small businesses are operating as a sole trader or setting up a company. Each has pros and cons depending on your goals, risk profile, and income level.
1. What Is a Sole Trader?
A sole trader is the simplest business structure — you operate under your own name or a registered business name, and you and your business are legally the same entity.
✅ Advantages:
Easy and low-cost to set up
Full control of your business
Fewer compliance requirements
Report income in your personal tax return
❌ Disadvantages:
Unlimited personal liability — you’re personally responsible for all debts and legal risks
Limited tax planning flexibility
May appear less credible to lenders or clients
2. What Is a Company?
A company is a separate legal entity registered with ASIC. It can own assets, enter contracts, and be sued independently of its directors and shareholders.
✅ Advantages:
Limited liability — personal assets are generally protected
More credibility with customers, suppliers, and investors
Greater tax planning flexibility — e.g., retain profits in the company at a flat tax rate (currently 25%)
Easier to bring in partners or investors
❌ Disadvantages:
Higher setup and ongoing costs
More complex compliance — annual ASIC fees, company tax returns, financials, and director duties
Cannot access the tax-free threshold for income — all profits are taxed
3. Tax Differences
If your income is growing above $100,000–$150,000/year, a company may become more tax-effective.
4. Other Factors to Consider
Risk and liability: If your business has higher risk (e.g., construction, importing goods), a company offers better legal protection.
Future plans: A company is better if you plan to scale, bring in partners, or sell the business.
Administration: Sole trader is best for freelancers, tradies, or those just starting out and keeping things simple.
5. Can I Change Structures Later?
Yes — it’s common to start as a sole trader and later transition into a company. Just keep in mind the capital gains tax (CGT) or asset transfer implications, which can sometimes be reduced using small business rollover concessions.
Final Tip
The right structure depends on more than just tax — consider legal risk, future growth, and administrative costs. It’s always best to consult with your accountant before deciding.
Thinking about changing your business structure? We can help assess your situation and set up the structure that’s right for your goals — get in touch for a tailored consultation.
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