The structure you choose when starting a business, sole trader, partnership, company or trust, shapes your personal liability, how much tax you pay, and how much paperwork you carry for as long as the business runs under it. It’s one of the few decisions that’s simple and cheap to get right at the start, and often expensive to unwind once the business has grown around the wrong choice.
This guide walks through the four main structures available to Australian small businesses, what actually differs between them, and when it’s worth reviewing a structure you’ve already got.
The four structures at a glance
| Structure | Personal liability | Tax treatment | Ongoing complexity |
|---|---|---|---|
| Sole trader | Unlimited, personal assets exposed | Taxed at your individual marginal rate | Lowest |
| Partnership | Generally unlimited, shared between partners | Each partner taxed on their share at their individual rate | Low to moderate |
| Company (Pty Ltd) | Limited to the company’s assets | 25% or 30% (flat, no progressive brackets) | Higher, ASIC obligations apply |
| Trust | Depends on the trustee (individual or corporate) | Income generally distributed to and taxed in beneficiaries’ hands | Moderate to higher |
Sole trader
A sole trader is the simplest structure to set up and run: you and the business are legally the same entity, registration is minimal, and there’s no separate structure to maintain.
The trade-off is unlimited personal liability. If the business is sued or can’t meet its debts, your personal assets, including your home, are exposed, not just what’s held inside the business. Income is taxed at your individual marginal rate, which can become less efficient than a flat company rate as profit grows.
Sole trader tends to fit: a low-risk business, often service-based, in its early stages, where the owner wants to test the business before committing to a more complex structure.
Partnership
A partnership splits ownership (and generally liability) between two or more people, with each partner taxed individually on their share of the partnership’s income. It suits businesses genuinely run by more than one owner, rather than being used as a default because a company feels like overkill.
Liability generally remains personal and, depending on the type of partnership, can extend to a partner being liable for decisions made by the others. That’s worth weighing carefully before entering one, particularly with a partner you haven’t worked alongside for long.
Partnership tends to fit: two or more genuine co-owners, often in professional or trade businesses, who want to share both the work and the tax outcome directly rather than through a company.
Company (Pty Ltd)
A company is a separate legal entity from its owners, which is what creates limited liability: business debts and legal claims are generally met from the company’s assets, not the personal assets of its shareholders or directors (director’s personal guarantees aside, and subject to director penalty notices for unpaid PAYG, super and GST, and insolvent trading liability, both genuine exceptions worth understanding rather than assuming away).
Companies pay a flat rate, 25% for base rate entities (aggregated turnover under $50 million, with mostly active rather than passive income) and 30% otherwise, rather than the owner’s individual marginal rate, which can make a company more tax-effective once profit reaches a level where the individual rate would otherwise be higher. Against that, a company carries ongoing ASIC obligations, such as annual reviews and keeping officeholder details current, and profit generally needs to be formally distributed (as wages or dividends) to reach the owner personally.
Company tends to fit: businesses carrying real liability risk, those seeking outside investment, or those with profit consistently high enough that the flat company rate becomes worth the extra compliance.
Trust
A trust holds assets or runs a business on behalf of beneficiaries, managed by a trustee (an individual or, more robustly, a company set up specifically to act as trustee). Income is generally distributed to beneficiaries each year and taxed in their hands, which gives flexibility in directing income to the family members or entities best placed to receive it. Income the trustee doesn’t distribute by year-end is taxed to the trustee at the top marginal rate, which is what makes a clear, timely distribution decision genuinely important rather than a formality.
Trusts are commonly used for asset protection and family or succession planning as much as for the immediate business itself, since assets held in the trust sit outside an individual beneficiary’s personal risk. They carry more moving parts than the other structures: a trust deed, a trustee (sometimes a company in its own right), and a distribution decision to make correctly each year.
Trust tends to fit: businesses with a family ownership element, a need for flexible income distribution, or a priority on separating valuable assets from operational risk.
NSW considerations for Hills District and Sydney businesses
A few obligations vary by state and are easy to overlook when comparing structures on tax and liability alone:
- Payroll tax. NSW applies payroll tax once your total wages bill crosses the threshold set by Revenue NSW, regardless of which structure you operate under. This applies per group, not per entity, so using multiple related entities (a common outcome of family structuring) can trigger grouping provisions that combine wages across them. It’s worth factoring into growth planning once you’re taking on staff, not just at the point you cross the threshold.
- Land tax. If your structure holds property, land tax treatment and thresholds can differ depending on whether the property sits with an individual, a company, or a trust.
- Workers compensation. NSW workers compensation obligations attach to having employees, again independent of your business structure, so this doesn’t change based on which of the four options you choose.
None of these change which structure suits you on their own, but they affect the ongoing cost of running whichever structure you land on, and are worth factoring in alongside the tax and liability comparison above.
When to review a structure you’ve already got
Structuring isn’t a one-off decision that holds forever. It’s worth revisiting when:
- Profit has grown to a point where a flat company tax rate would likely outperform your individual marginal rate.
- You’re bringing on a partner, investor, or family member into the ownership.
- The business has taken on materially more liability risk than when the structure was first chosen.
- Personal or family assets, like the family home, currently sit exposed to business risk that a different structure could separate out.
- It’s simply been several years since the structure was set up or last reviewed, and the business looks nothing like it did then.
Reviewing an existing structure is a different exercise to choosing one for a new business, since a restructure can carry its own tax consequences that need to be managed correctly rather than triggered accidentally.
Common mistakes in structuring a small business
- Copying what a friend or competitor uses, rather than structuring around your own liability exposure and tax position.
- Treating the decision as permanent, then continuing to operate through a structure that no longer fits years after the business has changed shape.
- Setting up a company but leaving it non-compliant with ASIC, missing annual reviews or letting officeholder details go stale.
- Using a trust without a clear distribution plan, leaving decisions until the last minute each year instead of planning ahead.
- Waiting until personal assets are already exposed to think about separating business risk from family assets, rather than building it into the structure from the outset.
Frequently asked questions
Do I need to start as a company, or can I begin as a sole trader and change later?
You can change structure as the business grows. Many businesses start as a sole trader for simplicity and move to a company once profit or risk reaches a point where it’s worth the extra compliance. The change itself needs to be managed properly, since it can carry tax consequences.
What’s the real difference between a trust and a company?
A company is a separate legal entity that pays its own tax and can retain profit inside it. A trust doesn’t pay tax itself in the same way, generally distributing income to beneficiaries who are taxed on it, which gives more flexibility over who receives income each year but adds the requirement of a trustee and a yearly distribution decision.
Is a trust only worth considering for large or wealthy families?
No. Trusts are used by businesses of varying sizes where asset protection or flexible income distribution matters, not only by large family groups. Whether it’s worth the added complexity depends on your specific circumstances rather than the size of the business alone.
How much does each structure cost to set up and maintain?
Costs vary structure to structure and change over time (ASIC registration fees, for instance, are set and indexed independently), so it’s worth getting current figures for your specific situation rather than relying on a general number. As a rule of thumb, sole trader and partnership are the cheapest to set up and run, and company and trust carry higher ongoing costs tied to their extra compliance.
Does my structure affect how I get paid personally from the business?
Yes. A sole trader or partner generally draws profit directly. A company owner is paid as wages, dividends, or a combination of both, formally recorded rather than drawn informally. A trust distributes to beneficiaries, who are then taxed on what they receive.
Getting the structure right at the start is far simpler than unwinding the wrong one later. If you’re setting up a new business, Manraj Singh and his team can talk through business structure and company setup so it’s registered correctly from day one. If you’re already trading and it’s been a while since your structure was looked at, structuring and asset protection is the right starting point instead. Book a consultation either way.
