- A sole trader business structure is where you trade under your own name (or a registered business name) and are personally liable for all debts and obligations. A company (usually a Pty Ltd) is a separate legal entity that offers limited liability, clearer governance, and stronger credibility with banks and partners.
- Choose a sole trader business structure if you’re starting small, testing your idea, or want minimal compliance and setup cost. Choose a company if you’re planning to grow, hire employees, enter larger contracts, protect personal assets, or need a structure that supports investment and scalability.
- Transitioning from sole trader business structure to company involves registering the new entity (ACN), applying for a new ABN, transferring assets/contracts, updating tax registrations, and notifying clients/authorities.
Choosing the right business structure is one of the most important decisions you’ll make when starting or growing your business. If you’re comparing a sole trader vs company setup, you’re likely wondering which option offers better tax benefits, protection, and long-term flexibility, especially if you’re still exploring how the sole trader business structure works.
We’ll help you understand the key differences between operating as a sole trader and registering as a company in Australia, from legal liability and taxes to setup costs and growth potential.
By the end, you’ll know the right structure for your business and how to transition from sole trader to company with support from a trusted sole trader accountant.
If you’re unsure which structure suits your business, start by mapping your growth plans, risk exposure, and revenue projections, these practical markers determine whether a sole trader or company delivers the right balance of simplicity and protection. Once you’ve decided, preparation is key: gather director/owner details, tax registrations, addresses, and transfer plans before you execute the restructure, so nothing slips through the cracks.
If you’d rather avoid the complexity and get it right the first time, Sleek can help you evaluate the structure that fits your goals and manage the entire transition from sole trader to company, including ASIC registration, ABN/TFN/GST setup, and compliance support so you focus on building your business, not fixing admin errors later.
What are the two common business structures in Australia
Before comparing sole trader vs company, it’s worth understanding what each structure really means, and how they differ in day-to-day operations.
What is a sole trader
A sole trader is an individual who owns and operates the business on their own. You make all decisions, control day-to-day operations, and report all business income under your personal tax return. It’s quick to start and flexible to run, but you’re personally liable for business debts, meaning your personal assets could be at risk if things go wrong.
What is a sole trader business structure?
The sole trader business structure is the most straightforward way to operate a business in Australia. Legally, the owner and the business are the same entity, meaning profits are taxed at your individual income tax rate and you carry full personal responsibility for debts and obligations.
It’s ideal for small or early-stage businesses because it’s low-cost, easy to manage, and requires minimal compliance. You can still hire employees, register for GST if needed, and claim business deductions but there is no legal separation between business assets and personal assets.
Key features of the sole trader business structure
Full personal liability: You’re legally responsible for all debts and obligations.
Individual tax treatment: All business income is reported through your personal tax return.
Fast and inexpensive setup: An ABN is free, and compliance is minimal.
Complete control: You make all decisions and manage the business independently.
Best for low-risk or early-stage businesses: Flexible, simple, and ideal for testing or operating as a solo professional.
What is a company
A company is a separate legal entity. Directors run it; shareholders own it. The big advantage is limited liability, your personal assets are generally protected from company debts (with usual director duties and exceptions). It comes with more setup, admin, and compliance.
Sole trader vs company in Australia: Key differences explained
Now that you know what each structure means, let’s look at how they stack up across the areas that matter most: liability, tax, setup, control, and growth potential.
1. Legal liabilities
Choosing a structure changes how much personal risk you carry. Sole traders face unlimited personal liability; a company is a separate legal entity with generally limited liability.
Factor | Sole trader | Company |
Liability | Unlimited, personal assets can be used to settle business debts. | Limited liability as shareholders aren’t ordinarily liable for company debts. Directors can still be personally liable for unpaid GST, PAYG, and super under the ATO’s director penalty regime. |
Risk exposure | Higher. Lawsuits and losses impact personal wealth. | Lower. Business assets/liabilities are separate from personal finances. |
Lenders often require director guarantees. If you sign one and the company defaults, you may be personally liable.
If risk is rising (bigger contracts, employees), limited liability usually wins.
2. Taxation
Your structure affects how profits are taxed and what you take home. Sole traders are taxed at personal rates; companies pay a company rate, with extra considerations when paying dividends.
Factor | Sole trader | Company |
Tax rates | Personal income tax rates apply; up to 45% for income over $190,000 (2024–25 brackets). | Company tax is 25% for base rate entities and 30% for others, depending on turnover and passive income. |
Returns | No separate business return; lodge an individual return | Must lodge an annual company tax return |
Dividends | Not applicable | Companies can distribute profits via dividends, which are taxed to shareholders (franking may apply). |
Check latest rates: Always confirm current ATO rates before deciding.
If your personal rate is high and profits are retained, a company may be more tax-efficient.
Read more: Sole Trader Tax Rate in Australia: The Complete Guide
3. Setup and ongoing costs
Sole traders are quick and cheap to start. Companies cost more to set up and maintain, but bring governance and credibility.
Factor | Sole trader | Company |
Set up costs | Minimal. Australian Business Number registration is free | Higher. ASIC registration and an annual review fee (Company registration: $611 and annual review (proprietary) $329). |
Compliance | Lower. Fewer lodgements/filings. | Higher. Annual ASIC review, solvency resolution, and company tax filings (financial reports only for some proprietary companies). |
- Add bookkeeping, payroll, and ASIC review fees into your budget.
- If you’re testing a concept, start lean; if you’re scaling or seeking credibility, budget for a company.
- Companies must maintain detailed financial records and lodge an annual company tax return. Only certain proprietary companies are required to submit financial statements to ASIC.
4. Control and decision-making
If total control matters, the sole trader is simple. Companies introduce governance, useful when you add co-founders or investors.
Factor | Sole trader | Company |
Decision-making | Full control, one person makes all decisions. | Shared. Directors and shareholders influence key choices. |
Flexibility | Highly flexible and easy to pivot. | Generally straightforward for single-director companies but adds complexity as stakeholders grow. |
5. Growth and investment potential
Companies are designed for growth, while sole traders face limits on capital and ownership.
If you’re planning to expand or attract investors, a company structure offers greater flexibility.
Factor | Sole trader | Company |
Growth potential | Limited. Can hire staff, but adding owners usually means restructuring. | Greater. Easy to add shareholders/directors and formalise roles. |
Raising capital | Hard. Mostly personal funds or small loans. | Easier. Can issue shares and attract external investors. |
A company structure is ideal if you’re preparing to scale or seek long-term funding.
When to move from a sole trader business structure to a company
Many business owners start out as sole traders because it’s simple, flexible, and low-cost. But as your business grows, that structure can start to hold you back.
Here are clear signs it might be time to switch from sole trader to company:
1. Your profits are growing
If your taxable income exceeds around $140,000–$190,000, a company structure may be more tax-efficient as it may reduce your overall tax bill. A company structure also lets you retain profits for reinvestment instead of drawing everything as personal income.
2. You’re taking on more risk
As a sole trader, you’re personally liable for debts or legal claims. If your business is expanding into riskier contracts, larger projects, or hiring staff, a company structure offers limited liability and better asset protection.
3. You want to scale or attract investors
It’s difficult to raise capital or bring in partners under a sole trader structure. A company setup allows you to issue shares, formalise ownership, and build credibility with lenders or investors.
4. You need to separate personal and business finances
Companies make it easier to manage cash flow, pay themselves a salary, and maintain cleaner financial records, all crucial for compliance and growth tracking.
5. You want long-term business continuity
Unlike a sole trader business that ends with you, a company can continue operating even if ownership changes. That makes it a better choice for succession or selling down the line.
How to move from sole trader to company: 6 simple steps
Moving from a sole trader business structure to a company involves shifting from being the business to running a separate legal entity. The first step in that transition is defining who owns and manages the new company.
Step 1: Lock in ownership and roles
Decide who owns what (share split), who runs it (directors), and, if relevant, your company name. This sets the rules for control, profit sharing, and future investment.
Step 2: Register your company with ASIC
Incorporate as a Pty Ltd to get your Australian Company Number and official company details. Keep core documents handy (certificate of registration, constitution/shareholders’ agreement). Before registering, ensure all proposed directors have a valid Director ID, which is required under ASIC and ATO rules
Step 3: Get your tax registrations (ATO)
If your turnover is $75,000 or more, apply for the company TFN and ABN and register for GST. If you’ll pay staff or yourself via payroll, set up PAYG withholding.
Step 4: Open a company bank account & switch your billing
Use your ACN/ABN and ASIC docs to open a dedicated company bank account. Update invoices, payment gateways, POS, subscriptions, and supplier accounts so money flows to the company, not you personally.
Step 5: Transfer what the business owns (properly)
Move relevant assets, contracts, IP, leases, domains, and licences from you to the company. Use assignments/novation where needed so customers and suppliers are legally tied to the company going forward.
Step 6: Update protection & compliance stack
Refresh insurance policies in the company’s name (e.g., public liability, professional indemnity). Update payroll, super, and accounting software to the new entity. Check your website, T&Cs, and privacy policy for the new ABN/legals.
Sole trader vs company: How to decide which structure fits your business goals
Choosing between a sole trader vs company structure isn’t just about cost, it’s about aligning your setup with your goals, risk level, and growth plans.
Here’s a quick decision guide to help you weigh what matters most:
Factor | Choose sole trader business structure if: | Choose a company if: |
Business size | You’re starting out, freelancing, or testing a business idea | You’re earning steady profits or planning to scale |
Risk exposure | Your work involves low financial or legal risk. | You’re taking on bigger projects or hiring staff. |
Tax position | Your taxable income is under $120,000. | You’re hitting higher brackets and want to optimise tax |
Funding and growth | You don’t need investors or external funding. | You want to attract investors, partners, or expand. |
Admin and compliance | You prefer simple reporting and full control. | You’re comfortable with structured management and annual filings. |
Exit or succession | You plan to operate solo long-term. | You may want to sell or pass the business on. |
Still unsure?
Let’s take this example to understand more:
- If you’re a side-hustle/early stage, low risk, modest income: Start as sole trader to validate quickly. Reassess at $100k–$200k revenue or when risk/clients demand a company.
- If you’re a growth-focused startup with partners or capital needs: Start (or switch) to a company to issue shares, ring-fence liability, and build investor confidence.
Choosing between a sole trader and a company ultimately depends on your business trajectory. If you’re running a low-risk operation or testing a new idea, a sole trader structure keeps setup simple. But once you expect higher revenue, plan to hire, want liability protection, or need greater credibility for contracts and funding, a Pty Ltd company becomes the more suitable long-term structure.
Transitioning from sole trader to company is straightforward when approached methodically: you register a new Pty Ltd company with ASIC, obtain a new ABN, update or transfer your GST/BAS settings, move existing contracts and assets to the company, notify clients and suppliers, update bank accounts, and ensure your accounting records are split cleanly between the old and new entities. When done correctly, the shift maintains business continuity while positioning you for growth, investment, and stronger compliance.
How your taxes change when switching from a sole trader business structure to a company
When you move from operating as a sole trader business structure to incorporating as a company, there are several tax issues you need to understand. Here they are in numbered form:
1. New entity and separate tax return:
Once you incorporate, the company becomes a separate legal and tax entity. The company will need to lodge its own company tax return.
As a sole trader, you were reporting business income under your individual tax return and using your TFN.
2. Company tax rate vs individual marginal rates:
-
- As a sole trader, you pay personal income tax on business profits at individual marginal rates (up to 45% for higher incomes).
- A company (if eligible as a “base rate entity”) may pay 25% tax on its taxable income.
So, if your business profits are high and you retain income in the company rather than distributing it, you may reduce tax.
3. Distributions, dividends and franking credits:
When you extract profit from the company, you’ll typically pay yourself via salary or dividends. Dividends can carry franking credits from the tax the company has already paid.
This means the overall tax on those profits will depend on your marginal rate, the company rate, and whether the dividends are franked.
4. Fresh registrations and obligations:
Your company needs its own TFN/ABN, plus GST (if required), PAYG withholding (if paying salaries), and super set up from day one.
Tip: Update your invoices, payment gateways, and supplier accounts so cash lands in the company account, not your personal one.
5. Asset transfers and contracts:
Transferring equipment, IP, leases, domains, or client contracts can trigger Capital Gains Tax or GST unless a rollover or proper mechanism (assignment/novation) is used.
Pro move: Map what’s moving, value it, document it, and check eligibility for rollovers before you press go.
6. Timing & final sole trader tax return:
You’ll need to lodge your final sole-trader business income in your individual return up to the date of transition. Then the company takes over from its incorporation date.
Make sure the registrations and effective dates align so you don’t have overlaps or gaps.
7. Losses don’t follow you:
Sole-trader losses generally don’t transfer to the company. The company starts with a clean slate.
Implication: If you have carried-forward losses, consider timing the switch so you don’t strand them.
8. Cost vs. benefit reality check
Companies add ASIC fees, annual reviews, and extra governance/filings. Make sure the tax efficiency, liability protection, and growth potential justify the higher admin load.
Incorporating can unlock tax planning flexibility and limited liability, but the win comes from clean execution, right dates, right registrations, and the right salary/dividend strategy. Make sure you work with a qualified accountant or tax adviser to align everything correctly.
What are the common mistakes when switching from sole trader to company?
Here’s a breakdown of common mistakes clients make when moving from a sole trader business structure to a company:
|
Mistake |
Why it happens |
Impact |
How to avoid it |
|
Not closing out the sole trader properly |
Final lodgements/ABN status get overlooked |
Ongoing GST/super/tax obligations under your old entity |
Lodge final returns, update/cancel the sole-trader ABN, notify ATO/ABR and key suppliers |
|
Transferring assets/contracts without tax review |
Treats transfers as routine admin without assessing CGT/GST, stamp duty, or assignment/novation implications. |
Unplanned CGT/GST events; contract validity issues |
Get advice on assignments/novation and eligibility for rollover relief before moving anything |
|
Basing the switch only on tax rates |
Overfocus on company rate vs personal rate |
Savings wiped by ASIC fees, bookkeeping, payroll, governance |
Do a full cost–benefit (including tax, compliance, risk involved, and growth) before deciding |
|
Mixing personal and company money |
Old sole-trader habits linger |
Piercing the corporate veil; messy records |
Open a company bank account, route all income/expenses through it, keep clean books |
|
Missing employer/tax registrations |
Assume old ABN/TFN covers it |
Penalties and back-payments for PAYG/super/GST |
Set up company TFN/ABN, register GST (if required), PAYG, super on day one |
|
Skipping shareholder/director setup |
Assumes single-owner simplicity and overlooks governance requirements, director duties, and formal share structure/documentation. |
Governance gaps; director liability risks |
Define share split, appoint directors, adopt a constitution/shareholders’ agreement |
|
Underestimating ongoing compliance |
Used to sole-trader simplicity |
Surprise ASIC annual review, company return, admin load |
Budget for ASIC fees, lodgements, and steady bookkeeping/payroll |
|
Switching at the wrong time |
Fear of risk or FOMO on tax savings |
Too early: no benefit; too late: missed protection/opportunity |
Switch when profits, risk, or growth plans clearly justify the move |
Tax implications change significantly when you move from a sole trader to a company: sole traders are taxed at personal marginal rates on net profit, whereas companies pay corporate tax at the company rate and handle owner pay through salaries, dividends, or director fees.
Mistakes like failing to transfer BAS/GST registrations, mixing personal and business expenses, or not aligning your accounting system during the transition can trigger tax penalties, incorrect tax reporting, or lost deductions. Planning your tax setup properly before the switch ensures compliance and maximises after-tax outcomes.
How Sleek helps you transition and stay compliant
No matter where you are in your business journey, managing accounts or planning to incorporate, Sleek makes every step effortless.
- All-inclusive accounting: Simplify your business with Sleek’s complete accounting, tax, payroll, and bookkeeping support for sole traders.
- Your dedicated accountant: The experts will manage your books and deadlines while giving you the insights to make confident growth decisions.
- Not sure which structure suits you best? We’ll assess your goals, income, and risk to help you decide whether staying a sole trader or registering a company makes sense.
- Company setup made simple: From ASIC registration to ABN, TFN, and ATO setup, Sleek experts will handle it all so your company’s compliant from day one.
- Stay ahead on taxes and deadlines: Never miss a deadline again, the experts will remind, and file on time so you stay compliant and stress-free.
Take the next step with confidence, Sleek’s experts are here to help you scale smarter, stay compliant, and grow with ease.
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Frequently Asked Questions
How does paying yourself differ as a company vs a sole trader?
Sole traders draw income directly from business profits. In a company, you can pay yourself a salary or dividends, giving more flexibility and control over your tax planning.
Can I operate both as a sole trader and a company at the same time?
Yes, you can, but each entity is treated separately for tax and legal purposes. For example, you might keep your freelance income as a sole trader while running a separate company for scalable projects. You’ll need distinct ABNs, bank accounts, and tax reporting for both.
Can I claim more deductions as a company than as a sole trader?
Both structures allow business deductions, but companies often have a broader scope for super contributions, director expenses, and vehicle or home-office claims. The main advantage lies in strategic timing and planning, not quantity.
