Starting or growing a business is a lot to hold in your head. Between sales, marketing and day-to-day cash flow, one of the biggest decisions is which structure to trade under. It is also one of the easiest to get wrong, because the four common structures carry very different costs, admin, tax outcomes and levels of personal risk. Complex financial lives don’t need complex explanations, so here is each one in plain terms.

In Australia the four most common structures are a sole trader, a partnership, a company and a trust. Here is how each works, with the pros and cons to weigh up.

Going it alone as a sole trader

A sole trader structure is where one person owns and runs the business under their own Australian Business Number (ABN).

The appeal is simplicity. It is cheap and quick to set up, and at tax time you report the business profit or loss in your personal tax return, taxed at your marginal rate. Being a sole trader does not stop you employing staff as you grow.

The catch is unlimited liability. You and the business are the same legal entity, so if it runs into financial or legal trouble, your personal assets are exposed. Good insurance becomes close to essential. Attracting investment can be challenging as it will usually require a change of structure eg to a company so that you have shares or equity to offer.

Working within a partnership

A partnership is two or more people going into business together, sharing income, costs and responsibility.

Partnerships let you pool knowledge, capital and effort, which can make a business cheaper and easier to start and run. They are simple to set up, but you should still document a partnership agreement covering how the business is to be run, who is going to do what, how profits are shared and how disputes are handled. It saves a great deal of grief later.

Tax is relatively straightforward. The partnership itself does not pay tax on its profit. Each partner reports their share in their own tax return and pays at their marginal rate. The partnership does need its own ABN and lodges a partnership tax return.

The downside is liability. Partners are usually jointly and severally responsible for the debts of the business, so you can be left carrying the full amount if a partner cannot pay. A limited partnership can reduce this risk, but that path is best taken with legal and accounting advice.

Operating as a company

A company is a separate legal entity, distinct from its owners, who are called shareholders. A company can have one shareholder or many, and it is registered with the Australian Securities and Investments Commission (ASIC).

The big draw is limited liability. A shareholder’s financial exposure is usually limited to what they have invested. Companies also pay tax at the company rate rather than personal rates: 25 per cent for a base rate entity (broadly, businesses with turnover under $50M and no more than 80% passive income) or 30% otherwise. A company is worth considering if you plan to bring in external investors or may sell the business one day.

Companies cost more to run. On top of the ASIC registration fee (342 dollars for a proprietary company from 1 July 2026) there are ongoing obligations: an annual ASIC review, proper financial records and a company tax return every year.

There is also a rule worth understanding early. Because the company is legally separate from you, the money in its bank account belongs to the company, not to you as a director or shareholder. You take money out through a mix of salary, dividends (which can carry franking credits) or, in specific cases, a director’s loan. You can take money out of your company through a mix of salary, super, fringe benefits, or dividends (which can carry franking credits). If you take or borrow other money from the company that creates a loan which is caught by Division 7A rules and can create an unexpected tax bill if handled wrongly, so this is one to plan with your accountant.

Setting up a trust

A trust is an arrangement where a trustee (eg you or a company you own) holds assets on behalf of the beneficiaries (eg your family). These assets can include businesses. In Australia, the most common form of a Trust is a discretionary trust, often called a family trust.

Trusts are popular for two reasons: asset protection and flexibility. Because the assets are technically owned by the Trustee rather than with you personally, a well-structured trust can help shield family assets from business risks. A discretionary trust also lets the trustee decide how to distribute income among beneficiaries each year, which can help manage tax across a family group. Income distributed to beneficiaries is taxed in their hands at their own marginal rates. However, we note that there are proposed changes that may require trustees to withhold 30% tax from the profit distributions from 1 July 2028. The beneficiary will get a credit for this tax already deducted (similar to the dividend PAYG/W and dividend franking credit system) but it won’t be refundable if their personal tax rate is less than 30%.

The trade-offs are cost and complexity. A trust needs a trust deed, careful annual administration and its own tax return, so it costs more to run than a sole trader or partnership. Distributions must be documented properly each year, and any annual income not distributed by the Trustee is taxed at the top marginal rate. Many businesses use a company as the trustee (a corporate trustee) to combine the flexibility of a trust with the limited liability of a company.

Which business structure is best?

There is no single right answer. The best structure depends on how much personal risk you are willing to carry, your expected income and tax position, how much admin vs flexibility you want, whether you want to bring in investors, how much asset protection matters, and what you want to happen when you eventually step back or sell. The right structure is also a succession and wealth question, not just a tax one, which is why it pays to look at it long term and across your whole financial picture.

Many businesses change structure as they grow, and moving at the right time can save both tax and stress. This is exactly the work our team does with Canberra business owners every day, from entity structuring and asset protection through to succession and intergenerational wealth planning, with tax and wealth thinking working together.

You don’t have to work it out alone. Let’s work through it together and find the structure that fits where you are now and where you’re headed.

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