Australian Business Structure Guide

Choosing the right business structure is one of the first decisions you will make, and one of the most important. It affects how much tax you pay, your personal liability, ongoing costs, and how easy it is to grow.

This guide compares the four main structures available in Australia so you can make an informed choice.

Quick Comparison

Sole Trader

The simplest and most common structure. You and the business are legally the same entity. Over 60% of Australian small businesses are sole traders.

Advantages

• Free to set up - just register an ABN
• Full control over all business decisions
• Simple tax - report business income on your personal tax return
• Minimal paperwork and compliance requirements
• Easy to change or close down

Disadvantages

• You are personally liable for all business debts
• Personal assets (house, car, savings) are at risk if the business is sued
• Harder to raise capital or bring in investors
• Higher tax rate once income exceeds ~$120,000 (37% marginal rate)

Best for

Freelancers, consultants, tradespeople starting out, side hustles, and low-risk service businesses. You can always restructure to a company later if the business grows.

Company (Pty Ltd)

A separate legal entity from you. The company owns its assets, incurs its debts, and pays its own tax. You are a director and shareholder.

Advantages

• Limited liability - your personal assets are generally protected
• Flat 25% tax rate for small businesses (turnover under $50M)
• Easier to bring in investors or co-founders
• More credibility with some clients and suppliers
• Can retain profits in the company at 25% rate

Disadvantages

• $576 ASIC registration fee plus annual review fees ($310+)
• Must lodge separate company tax return
• Director obligations under Corporations Act (personal liability for some debts)
• Cannot distribute losses to your personal return
• More expensive to wind up

Best for

Businesses with higher risk, those planning to hire employees, businesses expecting significant growth, or when you want to retain profits at a lower tax rate.

Partnership

Two or more people running a business together. The partnership itself does not pay tax - instead, profits and losses are split among partners according to the partnership agreement.

Advantages

• Simple and inexpensive to set up
• Shared costs, skills, and workload
• Each partner reports their share of income on their personal return
• Losses can be distributed to offset other income

Disadvantages

• Each partner is jointly and severally liable for all partnership debts
• Potential for disputes - a partnership agreement is essential
• Each partner is bound by the actions of other partners
• Harder to transfer ownership compared to a company

Best for

Professional practices (lawyers, doctors, accountants), businesses started by two or more people who trust each other, and situations where shared expertise is the key advantage.

Trust

A trust is a structure where a trustee holds assets and runs the business on behalf of beneficiaries. The most common types are discretionary (family) trusts and unit trusts.

Advantages

• Strong asset protection (trust assets are separate from personal assets)
• Flexible income distribution among beneficiaries for tax planning
• Can distribute to family members in lower tax brackets
• Good for holding investment assets

Disadvantages

• Expensive to set up ($1,000 - $2,500 for trust deed and establishment)
• Complex ongoing compliance and annual returns
• Must distribute all income each year (cannot retain profits tax-free)
• Need a corporate trustee for full liability protection ($576 ASIC fee)
• Losses are trapped in the trust

Best for

Family businesses, property investment, businesses with significant assets to protect, and situations where income splitting among family members provides meaningful tax savings.

When to Change Structures

Most people start as a sole trader and restructure later. Common triggers for restructuring include:

• Taxable income consistently above $120,000 (company rate becomes advantageous)
• Taking on significant risk or liability
• Bringing in business partners or investors
• Wanting to separate personal and business assets
• Planning to sell the business in the future

Talk to an accountant before restructuring. There can be capital gains tax implications and other costs involved in changing from one structure to another.

Next Steps

Once you have chosen your structure, head back to the launch checklist and start working through the remaining items. Your structure choice determines several downstream steps including ABN registration, tax setup, and compliance requirements.

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