One of the most important decisions you'll make when starting or growing a business is choosing the right structure. Get it right and you'll have a tax-efficient, legally protected foundation. Get it wrong and you could face higher tax bills, personal liability for business debts, or a costly restructure down the track.
Here's a plain-English comparison of the two most common options: sole trader and company.
"There's no single right answer — the best structure depends on your income level, risk profile, growth plans and personal circumstances."
Sole Trader — Simple, Flexible, But Exposed
A sole trader is the simplest structure. You operate under your own name (or a registered business name), your business income is reported in your personal tax return, and you're taxed at individual rates. There's minimal setup cost and no separate company tax return to lodge.
The major drawback: you have unlimited personal liability. If your business is sued or can't pay its debts, your personal assets — house, savings, car — are at risk. For low-risk service businesses with modest income, this may be acceptable. For businesses with employees, contracts, or significant assets, it's worth reconsidering.
Company — More Structure, More Protection
A company is a separate legal entity. It pays the corporate tax rate (currently 25% for base rate entities under $50M turnover) rather than individual marginal rates, which can be significantly lower once your income reaches a certain threshold. Directors have limited liability, meaning your personal assets are generally protected from business debts.
- Company tax rate: 25% (base rate entity) vs up to 47% marginal individual rate
- Limited liability protects personal assets
- More credibility with larger clients and lenders
- Higher setup and ongoing compliance costs (ASIC fees, company tax return)
- More complex to extract profits (dividends, salary, loans)
When Does It Make Sense to Switch?
Most accountants suggest considering a company structure when your net business profit consistently exceeds around $80,000–$100,000 per year — the point at which the company tax rate typically becomes more favourable than individual rates. Other triggers include taking on employees, entering significant contracts, or bringing in business partners.
Key Takeaways
- Sole trader: simple and cheap to run, but unlimited personal liability
- Company: limited liability and lower tax rate above ~$80K profit
- Structure changes are possible but involve cost and complexity
- Consider your income level, risk, and growth plans before deciding
- Always get professional advice before choosing or changing structure
The right structure for your business isn't a one-size-fits-all decision. Our team regularly helps clients review and restructure their business arrangements — contact us for a conversation about your specific situation.