Choosing between sole trader, company, and trust ( A complete guide to types of business structure)

Starting a business in Australia is an exciting step. Before launching your product or service, one important decision can shape your entire business journey: choosing the right business structure.

In Australia, the most common business structures are the sole trader, company, and trust. The structure you choose can influence several key aspects of your business, including:

• The registrations your business will require
• How your business is taxed
• Your ability to register a trademark
• Your legal responsibilities and financial obligations

Understanding how each structure works will help you make a decision that aligns with your business goals and responsibilities. This guide explores each option in detail, helping you weigh the pros and cons so you can choose the structure that best supports your operations now and into the future.

A brief overview of business structures in Australia

Before we compare sole trader vs company vs trust, let's clarify what each of these business structures actually means in practice. Each structure has unique characteristics that affect liability, tax, setup complexity, and ongoing responsibilities.

Sole trader

A sole trader is the simplest business structure. You own and operate the business yourself and make all the key decisions. There is no legal separation between the individual and the business, which means you are personally responsible for all business obligations, including any profits earned or losses incurred.

Company

A company is a type of business structure that is legally separate from the people who own or run it. This means the company can make contracts, own assets, borrow money, and be held responsible for its own debts.

The owners of the company are called shareholders, and the people who make decisions and manage the daily operations are known as directors. A company must be registered with the Australian Securities and Investments Commission and must follow the rules in the Corporations Act 2001.

Trust

A trust is a legal structure where a trustee carries on business activities for the benefit of others, called beneficiaries. The trustee can be an individual or a company (called a corporate trustee). The trust is created using a formal legal document known as a trust deed, which outlines how the trust will operate, including how income or assets are distributed.

There are two common types of trusts:

• Discretionary trust – the trustee decides how profits are shared among beneficiaries.
• Unit trust – beneficiaries hold units that determine how much profit they receive.

A trust is not a separate legal entity. The trustee is responsible for managing the trust and is legally liable for its debts. This is why many business owners appoint a company as the trustee to help reduce personal liability.

Pros and cons of sole trader, company, and trust

Discover the pros and cons of each business structure and choose the one that supports your goals.

Pros and cons of a sole trader

This is the widely used business structure in Australia. Below are the key pros and cons to help you decide if it's the right fit.

Pros:

• Complete control over all business decisions, profits, and operations.
• Inexpensive and easy to set up with minimal paperwork
• No need to disclose profits publicly.
• Business losses may be offset against other personal income (subject to ATO rules).
• Income is taxed as personal income, with access to the individual tax-free threshold (no tax payable on income under $18,200).
• Retains all profits generated by the business.

Cons:

• Personally responsible for all business debts and legal obligations.
• Cannot access the company tax rate, which may lead to higher tax at higher income levels
• Limited ability to attract outside funding or investors
• Selling or transferring the business can be more complex.
• Not eligible for WorkSafe Injury Insurance as the owner is not considered an employee.

This structure is best suited for self-employed individuals, small franchise owners, or independent contractors offering professional or trade services.

Pros and cons of the company

A more formal structure suited to growing or complex businesses. The following points outline the main pros and cons of operating as a company.

Pros

• Profits are taxed at a company rate, which is generally lower than the top individual income tax rate.
• Business debts and risks usually don't affect the owner's personal property.
• Shares can be issued, transferred, or cancelled, making it easier to bring in new investors or change ownership.
• Allows the company to continue operating regardless of changes in ownership or management.
• Legal agreements are made in the name of the company, not the directors. This helps separate personal responsibility from business obligation.

Cons

• Establishing and maintaining the company involves government fees (e.g., ASIC) and ongoing legal or accounting expenses.
• Must follow strict legal and reporting requirements, including corporate governance rules.
• If legal obligations aren't met, directors can be held personally responsible for business debts.
• Shareholders have voting rights and can replace directors, which may affect decision-making.
• Losses cannot be claimed against personal income. They remain within the company and can only be used to offset future business profits.
• This structure offers less privacy compared to others, as profits must be disclosed to the public.

This structure is well-suited to businesses with one or more directors and up to 50 shareholders, particularly in sectors like energy, technology, arts, entertainment, and education, where formal governance and growth potential are important.

Pros and cons of trust

The following outlines the main benefits and drawbacks of establishing a trust structure.

Pros

• A trust holds the business assets, not the individual. This helps protect those assets from personal debts or legal claims.
• The trustee has the discretion to distribute business profits to beneficiaries, such as family members on lower incomes, potentially reducing the overall tax liability.
• When profits are paid out, each beneficiary is taxed at their own personal rate, which may reduce the overall tax payable.
• Beneficiaries are generally not personally responsible for the debts or liabilities of the trust.
• May be eligible for small business CGT concessions and a 50% discount on capital gains for assets held longer than 12 months, if certain conditions are met.
• If a company is the trustee (not a person), it adds a layer of protection. This means your personal assets (like your house or savings) are more likely to be safe if something goes wrong in the business.

Cons

• More expensive to establish compared to sole traders or partnerships.
• Requires expert legal and financial advice due to its complicated structure.
• Requires a formal trust deed and compliance with strict legal and tax rules.
• Trustees must follow strict legal duties and meet regulatory requirements.
• Business losses cannot be passed on to beneficiaries to reduce their personal tax.
• Profits generally must be distributed; retaining them may lead to penalty tax rates.
• Trustees are personally responsible for business debts unless a corporate trustee is used, which provides limited liability protection.
• Once established, it's difficult to change or dissolve the structure.

This structure is well-suited to family-run businesses where there is a high level of trust among members, and where it's appropriate for a trustee to control and distribute profits or assets, such as in closely held businesses like family-owned retail, agriculture, or service enterprises.

How to register as a sole trader, company, or trust in Australia?

Choosing the right business structure is only the first step. Once you have decided to operate as a sole trader or set up a company or trust, the next step is making sure everything is registered correctly. Here's how to do it the right way:

Steps to register a sole trading business

Here are the steps you need to follow to get your sole trader business set up correctly and legally in Australia:

Step 1. Choose your business name

If you plan to trade under a name other than your own, register your business name with ASIC. Make sure the name is available and doesn't conflict with existing trademarks.

Step 2. Apply for an ABN (Australian Business Number)

You need to apply for an ABN to invoice clients, receive full payments, and avoid having tax withheld. An ABN is also required if you are registered for GST.

Step 3. Register for a TFN (Tax File Number)

As a sole trader, you can use your individual TFN to lodge your personal tax return, which includes your business income.

Step 4. Register for GST

You must register for GST if your business has, or is expected to have, an annual turnover of $75,000 or more.

Step 5. Check licensing and permits

Use the Australian Business Licence and Information Service (ABLIS) to find out what local, state, and federal licences or permits you need to operate legally.

Step 6. Consider business insurance

As a sole trader, you are personally liable for the business. Insurance, like public liability, professional indemnity, or income protection, can help protect your business and personal finances.

Steps to register a company

Registering a company involves more formal steps and legal requirements compared to a sole trader. Below is a step-by-step overview of how to set up a company in Australia:

Step 1: Choose a company name

Pick a name that's available and not too similar to an existing company or trademark. If you want to trade under a different name, you must register that name separately with ASIC.

Step 2: Prepare the company details

You will need:

• A registered office address
• Share structure and shareholder details
• Company rules (use replaceable rules or a constitution)
• Details of all directors and secretaries (officeholders)

Step 3: Register your company

You can register your company through the Business Registration Service (BRS), or you can approach our team to guide you through the process.

Step 4: Pay the registration fee

The fee for most companies is $503 or $611, depending on the type.

Step 5: Receive confirmation and your ACN

After registration, you'll receive a certificate and Australian Company Number (ACN). These must be displayed on company documents and signage.

Step 6: Understand your officeholder obligations

Company directors must keep records up to date, maintain a share register, and pay the annual ASIC review fee.

Steps to register a trust

A trust is a bit of a complex business structure that usually needs help from a lawyer or accountant. If you have chosen to run your business through a trust, these are the main steps to set it up the right way.

Step 1: Choose the type of trust

Decide whether you want to set up a family trust, discretionary trust, or unit trust, depending on how you plan to distribute income and manage ownership within the trust.

Step 2: Appoint a trustee

Choose either an individual or a company to act as the trustee. The trustee will have legal control and responsibility for the trust's operations.

Step 3: Draft a trust deed

Engage a solicitor or trust professional to prepare the legal document outlining how the trust will function, including rights, responsibilities, and profit distribution.

Step 4: Apply for an ABN and TFN

A trust must have its own Australian Business Number (ABN) and Tax File Number (TFN) to operate and report income.

Step 5: Register for GST if required

If the trust's expected or actual annual turnover is $75,000 or more, it must be registered for Goods and Services Tax (GST).

Step 6: Understand tax and reporting obligations

Beneficiaries may need to make PAYG tax instalments on distributions they receive. The trustee must also meet annual record-keeping and reporting requirements.

Step 7: Set up superannuation and insurance if employing staff

Like any business, if the trust employs workers, it must pay superannuation and meet employer obligations.

Business tax obligations: Sole traders, Companies, and Trusts

Sole trader tax obligations

As a sole trader in Australia, you are personally responsible for managing your business taxes. This includes the following:

• Lodge an individual tax return using your personal Tax File Number (TFN). Your return must report all business income and expenses.
• GST registration is also mandatory if you provide taxi, limousine, or ride-sourcing services (like Uber), regardless of income.
• If you are registered for GST, or if you pay instalments towards your tax during the year, you may need to submit Business Activity Statements (BAS).
• You pay income tax at individual marginal tax rates, based on your total income (business and personal combined).
• You can claim tax deductions for eligible business expenses, as well as personal superannuation contributions, as long as you notify your super fund appropriately.
• If you have employees, you must pay superannuation on their behalf. Your own personal super contributions are voluntary but recommended.
• You cannot claim tax deductions for personal drawings (money you take out of the business for yourself).

Companies tax obligations

A company is a separate legal entity from its owners. This means it has its own tax responsibilities, which include the following:

• Companies pay income tax on all profits from the first dollar, as there is no tax free threshold. For the 2025–26 year, the tax rate is 25% for Base Rate Entities with turnover under $50 million and less than 80% passive income, and 30% for all other companies.
• GST registration is required if the company earns $75,000 or more annually, or if it provides taxi, limousine, or ride-sourcing services, regardless of income.
• Business Activity Statements (BAS) may need to be lodged regularly, depending on GST registration, PAYG instalments, or employment obligations.
• An annual company tax return must be submitted to the Australian Taxation Office (ATO), outlining all income, expenses, and tax owed.
• Superannuation contributions are required for all eligible employees, including company directors receiving remuneration.
• When dividends are paid to shareholders, distribution statements must be provided, detailing the payment and any franking credits.
• All business income legally belongs to the company. If company funds are used for personal purposes, this must be recorded and managed carefully to stay compliant with tax laws.

Trusts tax obligations

A trust must meet the following tax obligations, which are managed by the trustee:

• The trust must register for GST if its yearly income is $75,000 or more, or if it provides taxi, limousine, or ride-sharing services.
• The trust may need to lodge Business Activity Statements (BAS) if it is registered for GST, employs staff, or makes Pay As You Go (PAYG) tax instalments.
• If the trust hires workers, it must pay superannuation for eligible employees, which could include the trustee if they work for the trust.
• The trustee is legally responsible for making sure the trust follows all tax laws and files accurate reports.
• Beneficiaries are taxed on the income they receive from the trust on their own tax returns.
• If the trust keeps the income instead of distributing it to beneficiaries, the trustee must pay tax on that income. The trustee may also have to pay tax on behalf of minors or people living overseas.
• If the trust makes a loss, that loss cannot be passed on to the beneficiaries, but the trust may be able to carry the loss forward to reduce future tax.

Still confused about the tax obligations of your chosen business structure, or simply want peace of mind? A quick chat with our tax accountant helps you stay compliant and avoid unexpected issues.

Business structure comparison: Sole Trader vs Company vs Trust

The table below outlines the key differences between sole traders, companies, and trusts to help you understand how each structure affects ownership, compliance, tax, and long-term planning.

Which business structure should I choose?

Choosing how to set up your business is more than just picking the simplest or cheapest option. It influences how you manage risk, meet tax obligations, bring in others, protect your assets, and plan for the future.

At CleanSlate, we assist new and growing business owners every day. We have seen how choosing the right structure from the beginning can support long-term stability, while the wrong choice can lead to avoidable complications later. There are a few core areas to consider.

Liability and risk

The structure you choose determines how much of your personal life is at stake. As a sole trader, the ATO views you and your business as one entity, meaning you have unlimited personal liability for all debts.

To protect assets like your home, a company or trust acts as a separate legal entity. This ensures that the business is responsible for its own obligations, keeping your personal wealth distinct from professional risks.

Taxation

Tax obligations vary across setups. Sole traders are taxed at individual marginal rates, which is simpler for startups but can become expensive as income grows. Companies pay a flat corporate tax rate, offering more predictability for high-earning businesses.

Trusts offer flexibility by allowing the trustee to distribute income among beneficiaries, who then pay tax at their own individual rates, which can optimise the overall tax position when managed correctly.

Control and compliance

If you prefer to make every decision yourself, the sole trader model offers autonomy with minimal paperwork. However, if you plan to work with co-owners or investors, a company provides the formal governance structure needed to manage shared interests.

Trusts place control with a trustee who must follow a formal Trust Deed. Both companies and trusts require their own TFN and ABN, involving more rigorous reporting than a sole trader setup.

Growth and succession

Consider your long-term vision. A sole trader structure is tied to you personally, making it difficult to sell or scale without ending the business. Companies and trusts are built for longevity, allowing for changes in ownership or leadership.

If you intend to eventually sell the business or pass it on to family, these structures ensure the operation continues without disruption, supporting a transition and better access to capital gains concessions.

Get expert guidance on setting up your business structure

It's worth remembering that you are not permanently locked into the business structure you choose at the beginning. However, making the right decision early can help you avoid unnecessary expenses, delays, and confusion as your business grows and evolves.

At CleanSlate, our business advisors take the time to understand your current position, future plans, and how different structures will affect your legal, tax, and compliance responsibilities. We guide you through the selection process and handle all necessary steps to get your business structure in place.

• Strategic setup: We evaluate your current position and future goals to ensure your structure addresses legal, tax, and compliance needs from day one.
• Full registration management: Our team handles applications for your ABN, GST, and business name, while configuring your tax, payroll, and BAS systems.
• Integrated expertise: You receive support from a combined team of business advisors, bookkeepers, and tax specialists for a unified approach to your operations.
• Fixed monthly pricing: Our fixed fee pricing model ensures your taxation, bookkeeping, and payroll requirements are covered with total predictability and no hidden fees.
• Ongoing support: We simplify the setup process and remain available to help you adapt your structure as your business expands and your requirements change.

Ready to get started?

If you are ready to set up your business the right way, contact us today. We are here to help you move forward with a structure that supports your goals and keeps your business running.