Published: November 2025
Choosing between operating as a sole trader, partnership, trust, or company structure is one of the most consequential decisions Australian business owners make. While you can change structures later, doing so involves cost, complexity, and potential tax consequences. Getting it right from the start saves substantial time and money.
In Australia, approximately 3.6 million businesses operate, with roughly 2.4 million (67%) structured as sole traders, 800,000 (22%) as companies, and 400,000 (11%) as partnerships or trusts. Company structures suit businesses focused on growth, requiring liability protection, or planning long-term wealth creation.
This article examines the advantages and disadvantages of company structures compared to other options, clarifies when companies make sense for Australian SMEs, and explains the real costs and compliance obligations you will face.
A company is a separate legal entity distinct from its owners. When you register a company with ASIC, you create a legal person that can own assets, enter contracts, sue and be sued, and continue operating regardless of ownership changes.
Key company characteristics:
Separate legal entity: The company itself owns assets and holds liabilities, not the individual shareholders or directors. This is the fundamental difference from sole traders and partnerships where you personally own everything.
Limited liability: Shareholders are only liable for company debts up to the amount they paid for their shares. If the company fails owing $500,000 but you paid $100 for your shares, your maximum exposure is $100 in most circumstances.
Perpetual succession: Companies continue existing indefinitely until formally wound up. Owner changes do not affect the company's legal existence.
Formal governance: Companies must have directors managing operations, maintain company records and registers, hold meetings and document decisions, and comply with Corporations Act requirements.
For Australian small to medium businesses, Proprietary Limited (Pty Ltd) is the relevant company structure. These are private companies with 1 to 50 non-employee shareholders and restrictions on raising public capital. Over 95% of Australian companies are Pty Ltd.
The most significant company benefit is limited liability. Shareholders risk only their investment in shares, not personal assets like homes or savings.
How limited liability works: If your company enters insolvency owing creditors $450,000, creditors pursue the company for payment, not shareholders personally. Company assets are sold to pay creditors. Once company assets are exhausted, creditors generally cannot pursue shareholders' personal assets.
Critical limitations to understand:
Personal guarantees override limited liability. Banks lending to small companies typically require director personal guarantees, making directors personally liable if the company defaults. Commercial landlords often require personal guarantees for lease obligations.
Directors can be personally liable for specific breaches including trading while insolvent, failing to meet taxation obligations, and fraudulent or illegal conduct.
Despite these limitations, limited liability still provides substantial protection compared to sole traders and partnerships where you are personally liable for all business debts without limitation.
Real example: A Melbourne software company borrowed $180,000 from a bank (with director personal guarantee) and accumulated $95,000 in supplier debts (without personal guarantees). The company failed. The director was personally liable for the $180,000 bank debt due to the personal guarantee, but suppliers could only pursue the company for the $95,000. Had this been a sole trader, the owner would have been personally liable for the full $275,000.
Companies pay a flat tax rate on profits, currently 25% for base rate entities (companies with turnover under $50 million and meeting passive income criteria). This compares favourably to individual marginal tax rates reaching 47% for income over $180,000.
This tax advantage works best when you retain profits in the company for reinvestment rather than extracting all earnings immediately. Your tax advisor can explain how company tax and dividend taxation interact for your specific situation.
Companies provide structural flexibility supporting business growth.
Raising capital: Companies can issue new shares to raise equity capital from investors or partners. Bringing on new shareholders is administratively simpler than restructuring partnerships or sole trader businesses.
Employee ownership: Companies can offer employee share schemes or equity participation, aligning staff incentives with business success.
Business sale simplicity: Selling a company is often simpler than selling a sole trader business. Buyers purchase shares, transferring ownership without changing the underlying business structure, contracts, or licences.
Multiple owners: Companies accommodate multiple owners through share allocation. As family members or partners enter or exit, share transfers adjust ownership clearly.
Real example: A Sydney marketing agency started as a sole trader. As the business grew, the owner wanted to bring in a senior employee as a part-owner. Restructuring as a company, they issued 70% shares to the founder and 30% to the new partner. Two years later, they raised $150,000 growth capital by issuing new shares to an investor at 20% ownership.
Operating through a company sometimes enhances perceived credibility with corporate clients, larger suppliers, and banks. When tendering for larger corporate contracts or dealing with procurement departments, company structure occasionally provides advantages.
Companies continue operating regardless of individual owner changes, providing succession advantages. Parents can transfer shares to children over time, gradually transitioning ownership while the business continues operating. This is particularly important if the business employs staff or has ongoing customer commitments.
Companies cost significantly more to establish and maintain than sole trader structures.
Registration costs:
Company registration with ASIC: $538
ABN registration: Free
Annual ASIC review fee:
Proprietary companies: $311 annually
Professional compliance costs:
Company accounting and tax: $4,000 to $12,000 annually depending on revenue and complexity
Sole trader accounting: $1,500 to $4,000 annually
Real example: A sole trader photographer with $180,000 revenue pays $2,400 annually for tax compliance. Restructuring as a company, their annual compliance costs increase to $5,800. The additional $3,400 annual cost must be justified by benefits like tax savings or liability protection.
Companies face substantially more complex reporting and compliance obligations.
Required record-keeping: Companies must maintain registers of shareholders, directors, addresses, and company details. Changes require ASIC notification within 28 days.
Financial reporting: Companies must prepare financial statements annually showing true and fair view of financial position.
Director responsibilities: Directors have legal duties including acting in the company's best interests, avoiding conflicts of interest, preventing insolvent trading, and ensuring compliance with legal obligations. Personal penalties apply for breaches.
ASIC lodgements: Annual company statements must be lodged and paid for. Changes to company structure or details require notification within specified timeframes.
This complexity means companies require professional accounting and legal support, whereas simple sole traders can sometimes manage their own compliance.
Company structures involve formal processes even when you are the sole shareholder.
Director obligations: As a director, you have legal duties to the company itself, not just yourself as owner. You must consider company interests, which occasionally differ from personal interests.
Formal decision requirements: Significant decisions require proper documentation and sometimes shareholder approval, not just your personal decision.
Multiple shareholders: With multiple owners, decisions require agreement or majority votes per shareholders' agreement. You cannot unilaterally make all decisions.
Accessing company profits is more complex than sole trader income. You cannot simply transfer company money to your personal account. Profits must be distributed as dividends following proper procedures, and you will pay personal tax on dividends received. Your accountant should guide you through dividend processes and tax implications.
Businesses intending to scale substantially benefit from company structure flexibility. Plans to raise equity capital, expand through multiple locations, build a sellable business asset, or bring in partners favour companies.
Example: A Perth software startup anticipates rapid growth and plans to seek investment capital. Starting as a company provides the structure investors expect and allows issuing shares to early employees as incentives.
Businesses with substantial liability exposure benefit from limited liability protection.
High-risk industries: Construction, manufacturing, professional services with significant contract values, and businesses holding valuable assets benefit from separating personal and business liability.
Real example: A Brisbane civil contractor regularly signs construction contracts worth $500,000 to $2 million. Operating as a company limits personal exposure if projects encounter problems leading to litigation or disputes.
Companies suit businesses retaining profits for growth rather than distributing all earnings to owners. If you plan to reinvest profits in equipment, inventory, expansion, or other business assets rather than taking all earnings as personal income, company structures can provide tax advantages.
Multiple business partners benefit from company structure clarity. Share allocation provides clear ownership percentages, and bringing new partners in or existing partners out occurs through share transactions.
Some industries and clients expect or prefer company suppliers. Large corporations sometimes require suppliers to be companies for vendor management purposes. Government tenders occasionally favour company structures.
Businesses generating modest income with no growth intentions often find company costs and complexity unjustified.
Low profit scenarios: If your business earns $60,000 annually, the additional $2,000 to $4,000 annual company compliance costs consume 3% to 7% of profit for minimal benefit. Sole trader structures make more sense until profit exceeds approximately $100,000 to $150,000 depending on circumstances.
Lifestyle businesses: If you intend to operate a stable business providing personal income without growth, employees, or sale ambitions, sole trader simplicity often outweighs company benefits.
Individuals whose income primarily derives from their personal skills and efforts may face personal services income rules that limit company tax benefits. Solo consultants, contractors, designers, and similar personal service providers should discuss structure options with a tax advisor before establishing companies.
Starting a company for an unproven business idea or short-term project may be premature. Many successful businesses start as sole traders during validation and early growth, restructuring to companies once revenue and growth trajectory justify the additional complexity and cost.
Example: An aspiring entrepreneur testing a business idea starts as a sole trader to minimise setup costs. If the business succeeds and generates $150,000 plus revenue, restructuring to a company makes sense. If the idea fails, they avoid unnecessary company costs.
Many businesses start as sole traders and later restructure to companies. This is common and generally feasible, though costs and tax implications exist.
Restructuring process involves:
Registering new company with ASIC, transferring business assets from individual to company, updating contracts and agreements, transferring licences and permits where required, and obtaining new ABN for the company.
Typical restructuring costs: $7,000 to $20,000 depending on business complexity, including company registration, professional advice, asset transfer documentation, and tax planning.
Example: A Canberra café operating as a sole trader for three years restructures as a company to bring in an investor and expand. Professional fees for the restructure total $12,000. The structure supports issuing 30% shares to the investor for $200,000 capital, funding expansion to a second location.
What is the main advantage of a company structure in Australia?
Limited liability protection is the primary advantage. Shareholders risk only their investment in shares, protecting personal assets against business failure or litigation in most circumstances. The company tax rate may also provide advantages for businesses retaining profits for reinvestment rather than distributing all earnings.
How much does it cost to register and maintain a company in Australia?
ASIC company registration costs $538. Annual costs include ASIC review fee ($311) and accounting and tax compliance ($4,000 to $12,000 depending on complexity). Total annual operating costs are typically $3,000 to $5,000 higher than sole trader structures.
Should I start my business as a company or sole trader?
Start as a sole trader if your business is unproven, you need to minimise costs, your projected profit is under $80,000 to $100,000, and you prefer simplicity. Start as a company if you face significant liability risk, plan rapid growth requiring investment, intend to retain profits for reinvestment, or have multiple co-owners requiring clear ownership structure. Consult with a business advisor or accountant to assess your specific situation.
Can I change from sole trader to company later?
Yes. Many businesses start as sole traders and restructure to companies once circumstances justify the change. Restructuring involves registering a new company and transferring business assets. Professional advice is essential to manage the process and understand tax implications.
What is the company tax rate in Australia?
Base rate entities (companies with under $50 million turnover meeting certain criteria) pay 25% company tax. Other companies pay 30%. These rates differ from personal income tax rates. Your accountant can explain how company tax and dividend taxation work together for your situation.
Do I need multiple directors for a Pty Ltd company?
No. Proprietary limited companies require minimum one director who is an Australian resident. You can operate with a single director who is also the sole shareholder. Larger companies often have multiple directors for governance purposes, but this is not legally required for Pty Ltd.
What are director responsibilities in Australia?
Directors must act in the company's best interests, exercise care and diligence, avoid conflicts of interest, prevent insolvent trading, and ensure the company meets tax and legal obligations. Personal penalties including fines apply for serious breaches. Directors can be personally liable for unpaid company tax and superannuation obligations in certain circumstances.
What is the difference between a company and a trust?
Companies are separate legal entities owned by shareholders and managed by directors, providing limited liability protection. Trusts are arrangements where trustees hold assets for beneficiaries, commonly used for asset protection and income distribution flexibility. Many Australian businesses use both structures together. Your accountant or advisor can explain which structure or combination suits your circumstances.
How does limited liability work with personal guarantees?
Limited liability means shareholders are only liable for their share investment. However, banks and landlords often require director personal guarantees for loans or leases. Personal guarantees override limited liability for those specific obligations, making directors personally liable if the company defaults. Limited liability still protects against other company debts without personal guarantees.
Can I take money out of my company whenever I want?
No. Company money belongs to the company, not personally to directors or shareholders. Extracting profits requires proper procedures including paying yourself a salary (subject to PAYG withholding and superannuation), declaring and paying dividends following proper procedures, or repaying loans if you previously lent money to the company. Taking company money without proper procedures can create significant tax problems. Your accountant should guide you through appropriate profit distribution methods.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses.Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete bookkeeping to strategic CFO insights, we deliver better outcomes than a single hire - without the recruitment risk, training time, or full-time salary commitment.
Considering hiring finance staff? Let's compare what you'd get with an internal hire versus our embedded team approach.
Our experts will show you the complete picture - costs, capabilities, and flexibility - so you can make the right decision for your business.
No lock-in contracts and 30 day money back guarantee.
