Sole trader, partnership, company or trust? Choosing a business structure
Your business structure decides who's responsible for the business's debts, how much paperwork you'll do, and what you need to register. Here's how the four main structures compare, so you can have a better conversation with your accountant.
In short
- There are four main structures - sole trader, partnership, company and trust. Most small businesses start as sole traders.
- The biggest differences are personal liability for debts, setup cost and ongoing paperwork, and how income is treated.
- A company is a separate legal entity, which can protect personal assets, but brings more cost and legal duties.
- You can change structure as the business grows, but it takes work, so think a year or two ahead.
- Get advice from an accountant before you decide. Your personal situation matters.
The four structures at a glance
| Sole trader | Partnership | Company | Trust | |
|---|---|---|---|---|
| Who owns it | You | Two or more people (or entities) | Shareholders | Held by a trustee for beneficiaries |
| Separate legal entity? | No | No | Yes | No (the trustee acts for the trust) |
| Responsible for debts | You, personally | All partners, personally | Generally the company, with exceptions | The trustee |
| Setup | Simple, low cost | Simple; a written agreement is strongly recommended | More forms and fees, registered with ASIC | Complex; needs a trust deed, usually set up by a professional |
| Ongoing paperwork | Lowest | Low to moderate | Highest, plus directors’ duties | High |
| Good fit for | Starting out, testing an idea, one-person businesses | People going into business together | Growing businesses, higher risk, outside investors | Specific family or asset arrangements, on professional advice |
Sole trader
You and the business are legally the same. You control everything, keep all the profit, and are personally responsible for everything, including debts.
- Why people choose it: quick, cheap and simple to set up and run. You can usually start with just an ABN.
- The catch: there’s no legal separation between you and the business. If the business can’t pay its debts, your personal assets can be at risk.
- Growing: a sole trader can still employ staff.
Partnership
Two or more people (or businesses) run a business together and share its income or losses.
- Why people choose it: easy to set up, and you share the load, the skills and the start-up costs.
- The catch: in a general partnership, each partner can be personally responsible for the partnership’s debts, including debts another partner took on.
- Must-have: a written partnership agreement that covers who puts in what, how profits are split, who decides what, and what happens if someone wants out. Our guide to joint ventures and partnerships covers what to include.
Company
A company is a legal entity separate from the people who own it (shareholders) and run it (directors). It’s registered with ASIC and has its own Australian Company Number (ACN).
- Why people choose it: it can limit your personal liability, it suits bringing in investors or co-owners, and it can make sense as profits grow.
- The catch: higher setup and ongoing costs, more record keeping and reporting, and directors have legal duties. Directors can be held personally liable in some situations, and lenders and landlords often ask small company owners for personal guarantees anyway.
- Money in and out: money in the company’s account belongs to the company, not to you. Paying yourself has rules, which your accountant will explain.
Trust
A trustee (a person or a company) runs the business on behalf of the trust’s beneficiaries, under the rules in a trust deed.
- Why people choose it: it can suit some family businesses and asset arrangements.
- The catch: trusts are complex and expensive to set up and run correctly. They’re almost always set up with an accountant or lawyer, and the right choice depends heavily on personal circumstances.
How to decide
Questions to think through, and to take to your accountant:
- How much risk does the business carry? Could it run up large debts, or be sued, for example if you give professional advice, build things, or sign big contracts?
- Are you going into business with others? If so, how will ownership and decisions be shared, and what happens if someone leaves?
- How much do you expect to earn in the first two or three years?
- Will you need investors or a loan?
- How much paperwork and cost can you handle right now?
- What are your longer-term plans: stay small, grow, sell?
A common path is to start as a sole trader, prove the idea, and move to a company once the business is earning steadily or the risks grow.
Changing structure later
You can change structure as the business grows, but it isn’t a simple switch. Moving from sole trader to company, for example, means setting up the company, getting new registrations (including a new ABN), and moving contracts, assets, accounts and sometimes licences across. business.gov.au has a step-by-step guide to changing structure.
Talk to an accountant before you change. Moving assets, contracts or a business from one structure to another can have serious tax consequences, such as capital gains tax, stamp duty or losing tax concessions, and can be costly to undo. An accountant can tell you what a change would mean for you, and help you time it well. It’s also why it pays to get advice before you choose a structure in the first place.