Sole Trader vs Company vs Trust: Which Structure Is Right for You?

The structure you trade through shapes your tax, your risk and your paperwork. Here's a clear comparison of the main options — and when it's worth changing.

Sole trader

The simplest and cheapest way to start. You and the business are one and the same: you report business income in your personal return and pay tax at your individual rates. The downsides are that there's no asset protection (your personal assets are exposed if things go wrong) and limited flexibility to manage tax as profits grow.

Best for: people testing an idea, or small, low-risk operations with modest profit.

Company

A company is a separate legal entity. It pays tax at the company rate — generally lower than the top personal rates — which can help when you're reinvesting profits. It also separates the business from you personally, giving a layer of asset protection. The trade-offs are more admin, ASIC obligations and cost, and the rules around getting money out (wages, dividends, loans) need to be handled properly.

Best for: growing businesses with steady profit, or where limiting personal liability matters.

Trust

A discretionary (family) trust can distribute income among beneficiaries — often tax-effectively across a family — and offers asset-protection benefits. It's more complex to set up and run, and distributions must be handled carefully each year. Many businesses use a company as trustee of a trust to combine the benefits.

Best for: family businesses, income splitting, and asset protection.

Partnership

Two or more people (or entities) carrying on business together. Simple and inexpensive, but partners are generally jointly liable — so asset protection is weak. Often a stepping stone to a company or trust structure.

So which is right?

There's no single answer — it depends on your profit, your risk, whether family or partners are involved, and where you're headed. The key is to decide deliberately rather than default into whatever's easiest, and to revisit it as you grow. The good news: you can restructure later, though it pays to plan the move to manage capital gains and other tax consequences.

Talk it through first

Before you lock anything in, it's worth an hour with an accountant who'll lay out the trade-offs honestly. That's exactly what our business setup & structuring service is for. Book a free consultation and we'll help you choose — and set it up properly.

This article is general information, not personal advice. Structuring decisions have tax and legal consequences — get advice for your situation.