Should I be a sole trader or a company?

As a sole trader, you and the business are legally the same person. If the business owes money or gets sued, your personal assets, including your home, can be used to pay.

A company is a separate legal entity, so it's generally liable for its own debts. That protection has limits. Directors can be personally liable for unpaid PAYG withholding and superannuation, for letting the company trade while insolvent, and for any personal guarantees they sign, which landlords and lenders often ask for.

A sole trader's business profit is taxed as personal income. For the 2026–27 income year, resident rates run from nil on the first $18,200 up to 45% on income over $190,000, plus the 2% Medicare levy.

A company pays a flat rate on its profits. For the 2025–26 income year, it's 25% for base rate entities (broadly, companies with aggregated turnover under $50 million where no more than 80% of assessable income is passive income, such as interest or rent) and 30% for others.

That's not the whole picture. You can't simply withdraw company money as your own. You're paid through wages, director's fees or dividends, which are taxed in your hands. An accountant can model which structure leaves you better off.

Sole trader: an ABN is free, you use your own tax file number and report business income in your personal tax return. You only need to register a business name if you trade under something other than your own name.

Company: you pay ASIC to register the company and an annual review fee each year after that. The company lodges its own tax return, must keep financial records for at least seven years, and must notify ASIC of changes such as new directors within 28 days. Every director needs a director ID, which is free but must be obtained before they're appointed.

Directors also take on legal duties, including acting in good faith in the company's best interests, using care and diligence, and preventing insolvent trading.

Common triggers for moving from sole trader to company are rising profits, hiring staff, signing a large contract or lease, doing higher-risk work, or bringing in a co-founder or investor.

Switching isn't a simple name change. The company generally needs its own ABN, and you'll need to transfer your business name and any registered IP, and move contracts across. There can be tax consequences, so talk to an accountant first. A Sprintlaw lawyer can set up the company and its founding documents for a fixed fee.

A partnership suits two or more people in business together. Each partner has unlimited liability for the partnership's debts, the partnership lodges its own tax return and each partner pays tax on their share. A written partnership agreement is strongly recommended.

A trust is run by a trustee, which can be a company for asset protection. The trustee decides how profits are distributed to beneficiaries. Trusts need a formal trust deed and are more expensive and complicated to set up.