For Australian small-business owners deciding how to set up
You're ready to start a business. Somewhere in the first few conversations, someone asks:
“Are you setting up as a sole trader or a company?”
And suddenly you're being pulled in different directions. A friend says sole trader is simpler. Another says a company protects you. Someone else mentions tax savings without explaining what that actually means.
Here's the more useful way to think about it: this isn't a question with one right answer. It's a question with the right answer for your situation — based on how much risk you're carrying, how you plan to grow, and how much administration you're willing to take on.
The short answer
A sole trader is the simplest structure. You and the business are legally the same thing — there is no separation between you personally and what the business owes or owns.
A company is a separate legal entity. It can own assets, enter contracts and incur debts in its own name, which is what creates limited liability protection for you as the owner.
The Australian Government's comparison of the two structures notes that sole traders and companies carry different legal, tax and reporting obligations, and recommends weighing up cost, liability and reporting requirements before deciding.
The core differences, side by side
| Sole Trader | Company | |
|---|---|---|
| Legal status | Same legal entity as you | Separate legal entity |
| Liability | Unlimited — personal assets at risk | Generally limited to what you paid for your shares |
| Setup cost | Free (ABN registration) | ASIC registration fee, plus an annual review fee |
| Ongoing admin | Minimal — individual tax return | Higher — director duties, company records, separate tax return |
| Tax treatment | Taxed at your personal marginal rate | Taxed at the company tax rate; profits and your personal finances are separate |
| Control | Full control, no formal governance | Shared or formal governance if there is more than one director/shareholder |
So which one is actually right for you?
Rather than chasing a universal answer, it helps to ask a handful of honest questions about your situation.
How much risk am I carrying? If the business could realistically run up debts you couldn't personally cover — large contracts, stock, equipment finance, staff — limited liability starts to matter.
Am I planning to bring in investors or partners? Companies can issue shares and are generally easier to bring outside capital into.
What does my profit level look like? As profit grows, the gap between your personal marginal tax rate and the company tax rate can become a genuine planning consideration — this is exactly the kind of question worth running past an accountant with real numbers.
How much admin am I willing to carry? A company means director obligations, company records, and generally higher accounting costs to maintain.
Do I want to keep things simple while I test the idea? Many businesses deliberately start as a sole trader and convert to a company once the business, and the risk, has grown.
Does starting as a sole trader lock you in?
No — and this is one of the most common misconceptions.
You can change your business structure as the business grows. Plenty of businesses start as a sole trader specifically because it's the fastest, cheapest way to test an idea, then restructure into a company once there's something real to protect.
Restructuring isn't instant or free — it involves registering a new entity, transferring assets, and understanding the tax consequences of the change — which is exactly why it's worth planning for rather than reacting to.
A quick self-check
Could this business realistically end up owing more than I could personally repay?
Am I likely to bring in a business partner, co-owner or investor?
Do I expect profit to grow substantially in the next 1–2 years?
Am I comfortable with the extra record-keeping and reporting a company requires?
Have I priced in the ASIC registration and annual review fees, not just the setup cost?
If your honest answers point toward growth, risk or outside investment, a company is worth a proper conversation. If you're testing an idea with limited exposure, a sole trader structure may be the sensible starting point.
When should you get professional advice?
This is a decision worth getting right the first time, because unwinding it later has real cost and complexity. Consider a conversation with an accountant before you register anything if:
you'll be taking on contracts, debt or stock that could exceed what you could personally cover;
you're starting the business with a partner, co-founder or investor;
you expect meaningful profit in year one rather than a slow ramp-up; or
you're unsure how the tax treatment would actually play out for your numbers.
Continue learning
→ I've Decided to Start a Business — What Do I Actually Need to Set Up?
→ ABN, ACN, TFN and GST — What Do All These Numbers Actually Mean?
→ How Do I Pay Myself From My Business?
SKC Accounting | Knowledge Centre | Knowledge Guide 001
Last reviewed: August 2026
General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.