Sole Trader, Company or Trust? Choosing Your Business Structure

Your business structure decides how much tax you pay, what happens if things go wrong, and how hard it is to bring other people into the business later. For most Australian small businesses the choice comes down to four options: sole trader, partnership, company or discretionary (family) trust. Here's how they actually compare — without the legalese.

Sole trader: the simple default

As a sole trader, you and the business are legally the same person. You register an ABN (free, through the Australian Business Register), register a business name with ASIC if you're not trading under your own name — $47 for one year or $108 for three (as at August 2026) — and you're in business.

Tax: business profit is simply added to your personal income and taxed at individual marginal rates. For 2026–27 that means nothing on the first $18,200, then 15% up to $45,000, 30% up to $135,000, 37% up to $190,000 and 45% above that, plus the 2% Medicare levy for most people. You lodge one tax return — your own — and you can use the 50% CGT discount on business assets held for more than 12 months.

The catch: unlimited personal liability. If the business owes money or gets sued, your personal assets — including your house — are on the line. And once profits push you into the higher brackets, you're paying more tax than a company would on the same income.

Partnership: two or more of you

A partnership is two or more people (or entities) running a business together. Setup is cheap — an ABN and TFN for the partnership, plus a partnership agreement, which is worth paying a lawyer to draft even though the law doesn't force you to.

The partnership lodges its own tax return but pays no tax itself. Each partner declares their share of the profit and pays tax at their own marginal rate.

The dealbreaker for many: joint and several liability. You can be personally pursued for the full debts of the partnership — including debts your partner ran up without asking you. That's why plenty of accountants steer two-person businesses towards a company or trust once real money is involved.

Company: a separate legal person

A proprietary limited (Pty Ltd) company is its own legal entity. It can own assets, sign contracts and be sued — separately from you. Registration through ASIC costs $636 (as at August 2026), directors need a free director ID from Australian Business Registry Services, and most people pay an accountant or online service a bit extra to handle the paperwork.

Tax: most small companies qualify as a "base rate entity" — aggregated turnover under $50 million and no more than 80% of income from passive sources like rent and interest — and pay a flat 25% company tax rate. Everyone else pays 30%. Compare that 25% with the 47% (including Medicare levy) a sole trader pays at the top marginal rate and the appeal is obvious.

But here's the bit people miss: the 25% rate only applies to profit kept in the company. Pay yourself a wage or dividends and that money is taxed at your personal marginal rate, with a credit (franking) for tax the company already paid. The real advantages are capping tax on retained profits you're reinvesting, and smoothing income across years. You also can't just borrow company money for personal use — Division 7A rules treat untidy loans as unfranked dividends.

Other trade-offs:

• Asset protection: genuinely good — shareholders generally aren't liable for company debts. But banks and landlords routinely demand personal guarantees from directors, and directors can be personally liable for insolvent trading and unpaid employee super and PAYG withholding.
• No CGT discount: companies don't get the 50% discount on capital gains that individuals and trusts do.
• Compliance: a separate company tax return, proper books (see our guide to the best accounting software for Australian small businesses), an annual ASIC review fee of $342 (as at August 2026), and late fees of $102–$428 if you miss it.
• Investors: this is where companies shine. Selling shares is the standard way to bring in partners or outside investment.

Discretionary (family) trust: flexible, with strings attached

In a discretionary trust, a trustee runs the business and holds its assets for the benefit of beneficiaries — usually your family. Most accountants recommend a corporate trustee (a company set up just to act as trustee), which adds company setup and ASIC costs on top of having the trust deed professionally drafted. It's the most expensive of the four to establish, and some states charge stamp duty on the deed — your accountant will quote the full picture.

Tax: the trust itself pays no tax if it distributes all its income. Each year the trustee decides which beneficiaries receive what, and each pays tax at their own marginal rate. That's the headline benefit — profit can flow to family members on lower incomes rather than piling onto yours. The 50% CGT discount also flows through to individual beneficiaries, which companies can't offer.

The strings:

• Income not distributed by 30 June is taxed at the top marginal rate, and the trustee must document distribution decisions before then.
• Losses are trapped in the trust — you can't offset them against your personal income, which makes trusts awkward for businesses expecting early losses.
• Outside investors are a poor fit: a discretionary trust has no shares to sell.
• Compliance sits at company level or above: an annual trust tax return, trustee resolutions, plus company obligations if you have a corporate trustee.

Side-by-side comparison

	Sole trader	Partnership	Company	Discretionary trust
Setup cost	Free ABN; business name from $47/yr	Low; pay for a partnership agreement	$636 ASIC fee plus any agent costs	Highest — deed, advice, often a corporate trustee
Tax treatment	Your marginal rates (up to 45% + Medicare)	Each partner's marginal rates	Flat 25% (base rate entity) or 30%	Beneficiaries' marginal rates; top rate if undistributed
Asset protection	None	None — joint and several liability	Good, subject to guarantees and director duties	Good, especially with a corporate trustee
Bringing in investors	No	New partner means a new partnership	Yes — issue or sell shares	Difficult
Ongoing compliance	Lowest — one tax return	Partnership return plus your own	Company return, ASIC annual fee ($342), bookkeeping	Trust return, annual resolutions, corporate trustee admin

Figures as at August 2026.

Which structure makes sense when

• Sole trader suits freelancers, tradies starting out and anyone testing an idea — low risk, profits comfortably inside the lower tax brackets, no outside money needed.
• Partnership suits two people with complementary skills and total mutual trust, at least until the numbers justify something more robust.
• Company suits businesses earning well beyond what the owners need to live on, anything with real liability risk (employees, premises, products), and anyone planning to raise money or scale.
• Trust suits profitable family businesses where income can genuinely be spread across family members, and owners who want stronger asset protection with CGT flexibility.

Whichever you choose, the GST rules are the same: registration becomes compulsory once turnover hits $75,000 (as at August 2026) — our plain-English BAS and GST guide covers what that means day to day. And structure affects tax timing too: companies and higher-earning individuals get pulled into PAYG instalments, which is worth building into your cash flow planning.

Start simple, restructure later

Here's the reassuring part: this decision isn't forever. A very common path is starting as a sole trader while you prove the business works — ideally with even a simple business plan behind it — then moving to a company or trust once profits and risk justify the extra cost.

Restructuring does have a sting, though. Moving your business into a new entity means transferring assets like goodwill and equipment, which is normally a capital gains tax event — potentially a tax bill on a business you haven't sold. CGT rollovers exist, including the small business restructure rollover, that can defer or eliminate that tax if the conditions are met, and stamp duty and GST can also come into play. This is squarely talk-to-your-accountant territory: get advice before you sign anything, because the right sequence of steps matters.

Key takeaways

• Sole trader is the cheapest and simplest structure, but offers zero asset protection and gets tax-expensive as profits grow.
• A company pays a flat 25% tax (for most small businesses) and limits your liability, but costs more to run and only defers tax on money you eventually take out.
• A discretionary trust lets you distribute income across family members at their marginal rates, at the price of the highest setup and admin burden.
• Partnerships are cheap but expose each partner to the other's debts — think hard before choosing one for anything substantial.
• Ballpark costs (as at August 2026): $636 to register a company, $342 a year to keep it, $47 a year for a business name.
• You can start as a sole trader and restructure later — but get accountant advice on CGT rollovers before you move anything.

Where to get help

• business.gov.au has a free "Help me decide" tool that walks you through structure and registration options.
• The ATO's business structures pages cover the tax treatment of each structure and current rates and thresholds.
• ASIC handles company registration, business names and current fees.
• Most importantly: a good accountant. An hour of structure advice before you register is some of the cheapest insurance your business will ever buy.