Choosing the Right Business Structure in Australia: Sole Trader, Company, or Trust?
The business structure you choose when starting or restructuring a business has significant implications for your tax obligations, personal liability, and ability to bring in investors or partners. There is no one-size-fits-all answer — the right structure depends on your circumstances and goals.
Sole trader
Operating as a sole trader is the simplest and cheapest structure. There is no separate legal entity — you and the business are one and the same. This means unlimited personal liability for business debts. Income is taxed at your personal marginal rate. Suitable for low-risk, low-revenue businesses where simplicity is a priority.
Partnership
A partnership involves two or more people carrying on a business together. Like a sole trader, there is no separate legal entity and partners have unlimited personal liability — including for the actions of their partners. A partnership agreement is essential to document each partner's rights and obligations.
Company
A company is a separate legal entity with limited liability for its shareholders. The company pays tax at the corporate rate (currently 25% for base rate entities). Companies involve more administrative obligations and costs than simpler structures, but provide greater asset protection and are often preferred by investors.
Trust
A discretionary (family) trust allows income to be distributed among beneficiaries in a tax-effective way. Trusts do not pay tax themselves — income is taxed in the hands of the beneficiaries. Trusts can also provide asset protection. However, they are complex to establish and administer, and the ATO scrutinises trust distributions carefully.
Getting advice before you start
Choosing the wrong structure can be costly to unwind. The tax and legal implications of restructuring an established business are significant. It is worth investing in professional advice — from both a lawyer and an accountant — before you start trading or before you make significant changes to an existing structure.
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