Your business structure shapes how much tax you pay, who is legally on the hook if things go wrong, how much admin you carry, and how easily you can bring in partners or share profits. Get it right early and it supports your growth; get it wrong and it can be costly to unwind. Here's how the main options compare.
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Why your structure matters
Four things change depending on the structure you pick:
- Liability — whether your personal assets are exposed if the business is sued or can't pay its debts.
- Tax — how profits are taxed, and how flexibly income can be shared.
- Cost & admin — what it takes to set up and keep running each year.
- Control & growth — how easily you can add owners, raise money or sell.
Sole trader
You are the business
- Liability
- Unlimited — you're personally responsible for all debts and obligations.
- Tax
- Business profit is taxed as your personal income, at individual tax rates.
- Cost / admin
- Low. You trade under your own name or a registered business name and lodge one individual return.
- Best for
- Getting started, low-risk work, and testing an idea before committing.
Partnership
Shared ownership between people or entities
- Liability
- Generally unlimited and shared — partners can be responsible for each other's business debts.
- Tax
- The partnership lodges its own return but doesn't pay tax itself; each partner is taxed on their share of the profit.
- Cost / admin
- Moderate. A written partnership agreement is strongly recommended.
- Best for
- Two or more people going into business together simply, who trust each other and want to share profits.
Company
A separate legal person you own through shares
- Liability
- Limited — generally the company (not you personally) is responsible for its debts, subject to director duties and any personal guarantees you give. Directors can be personally liable for unpaid PAYG withholding, GST and super.
- Tax
- The company pays tax on its profits at the company tax rate (currently 25% for base rate entities, otherwise 30%); profits paid to you as wages or dividends are then taxed in your hands (often with franking credits). Money taken out in other ways can be treated as an unfranked dividend under Division 7A.
- Cost / admin
- Higher. It must be registered with ASIC, keep proper records, and meet ongoing reporting and director obligations.
- Best for
- Established or growing businesses, higher-risk activities, and owners who want to reinvest profits or bring in investors.
Trust
A trustee runs the business for beneficiaries
- Liability
- Depends on the trustee. Using a company as trustee is common to limit personal exposure.
- Tax
- Income is generally distributed to beneficiaries each year and taxed in their hands; income that no beneficiary is entitled to is taxed to the trustee at the top marginal rate. A discretionary (family) trust can offer flexibility in how income is shared.
- Cost / admin
- Higher and more complex. A trust deed is required and the trust must be administered strictly in line with it.
- Best for
- Family businesses, a degree of asset protection, and situations where flexible income distribution is valuable.
How to choose
There's no single "best" structure — the right one balances your circumstances today with where you're heading. Weigh up:
- How much personal risk the work carries.
- Your expected profit and how you want to draw or reinvest it.
- Whether you need asset protection or to share income with family or partners.
- Your appetite for admin and cost.
- Your growth plans — hiring, investors, or an eventual sale.
You're not locked in forever — many businesses start simple and restructure as they grow, and tax concessions can sometimes make the change easier. Keep in mind that a company or trust generally can't be used to split income that mainly comes from your own personal effort (the personal services income rules).
Frequently asked
What are the main business structures in Australia?
Sole trader, partnership, company and trust. They differ in who's legally responsible, how profits are taxed, how much they cost to run, and how easily income and ownership can be shared.
Is a company better than a sole trader?
Not always. A sole trader is inexpensive and simple; a company is a separate legal entity that generally limits personal liability and is taxed at the company rate, but costs more and carries more obligations. The best choice depends on your income, risk and growth plans.
Can I change my structure later?
Yes — many businesses move from sole trader to a company or trust as they grow. Restructuring can have tax and cost consequences, so plan it with your accountant; concessions may be available.
What is a trust and why use one?
A trustee holds and runs the business for beneficiaries. Discretionary (family) trusts are used for flexible income distribution and can provide a degree of asset protection, but they are more complex and costly to run — and the tax rules for trusts are changing, so get advice before setting one up.