When you start a business in Australia, one of the first — and most consequential — decisions you'll make is how to structure it. The two most common options for small business owners are operating as a sole trader or setting up a company (Pty Ltd). Each has genuine advantages and real drawbacks, and the right choice depends on your circumstances.
Sole Trader
A sole trader is the simplest and most common business structure in Australia. You register an ABN in your own name, and you and your business are legally the same entity.
Advantages:
- Simple and inexpensive to set up — just register an ABN and you're trading
- Minimal ongoing compliance — no annual ASIC fees or company tax returns
- You keep all the profits
- Easy to wind up if things don't work out
- Can access the 50% CGT discount on business assets held more than 12 months
Disadvantages:
- Unlimited personal liability — your personal assets (home, savings, car) are at risk if the business is sued or can't pay its debts
- Can be harder to raise finance or attract investors
- Tax is paid at your personal income tax rate, which can be higher than the company tax rate as income grows
- The business cannot continue without you — there is no separate legal entity
Company (Pty Ltd)
A proprietary limited company is a separate legal entity from its owners. You register the company with ASIC, and the company operates, owns assets, and enters contracts in its own right.
Advantages:
- Limited liability — your personal assets are generally protected from business debts and legal action
- Lower tax rate — the base rate for small companies is currently 25%
- More credible and professional in the eyes of larger clients, banks, and suppliers
- Easier to bring in business partners, investors, or shareholders
- Can continue to operate if the owner changes
Disadvantages:
- More expensive and complex to set up (ASIC registration fees apply)
- Ongoing compliance requirements — annual ASIC fees, company tax returns, minutes, and more
- Higher accounting costs
- Profits cannot simply be drawn out — distributions must follow proper dividend or salary processes
Which One Should You Choose?
For most people just starting out with a low-risk service business and modest income expectations, a sole trader structure makes perfect sense. It is simple, cheap, and easy to manage.
A company starts to make more sense when:
- Your business carries meaningful liability risk (construction, trades, professional services)
- Your net profit exceeds around $80,000–$100,000 per year and tax planning becomes a priority
- You want to bring in business partners or investors
- You are tendering for contracts that require a company structure
There is also a middle ground — many small business owners operate as a sole trader initially and restructure into a company as they grow. This is entirely possible, though it does have some cost and complexity.
Get Advice Before You Decide
Business structure has significant tax, legal, and financial implications. Before making the decision, speak with a registered accountant or business lawyer who can assess your specific situation and give you advice tailored to where you are now and where you want to go.