Updated: April 2026

Choosing the right business structure is one of the most important decisions you will make when starting a business in Australia. The structure you choose affects how much tax you pay, your asset protection, and your ongoing costs.

The two most common structures are Sole Trader and Proprietary Limited Company (Pty Ltd). Here is a breakdown of how they compare.

1. Operating as a Sole Trader

A Sole Trader is the simplest and cheapest business structure. You and your business are considered the same legal entity.

• Pros: Very easy and inexpensive to set up. You have complete control over the business, and there are minimal reporting requirements compared to a company. You use your individual Tax File Number (TFN) to lodge your tax return.
• Cons (Personal Liability): Because you and the business are the same entity, you are personally liable for all business debts. If the business is sued or goes bankrupt, your personal assets (like your house or car) are at risk.
• Tax Rates: You are taxed at individual marginal tax rates. If your business becomes highly profitable, you could end up paying up to 45% (plus the Medicare Levy) in tax.

2. Operating as a Company (Pty Ltd)

A Company is a separate legal entity from you. It has its own TFN, ABN, and bank accounts. The company is owned by shareholders and run by directors.

• Pros (Asset Protection): Because the company is a separate entity, it provides "limited liability." This means your personal assets are generally protected if the business falls into debt or faces legal action.
• Tax Rates: Companies pay a flat tax rate. For "base rate entities" (most small businesses), the current company tax rate is 25%. This can be much more tax-effective than a Sole Trader structure if your profits are high.
• Cons: Companies are more expensive to set up and maintain. They require a separate company tax return, have stricter ATO and ASIC reporting requirements, and company directors face strict legal obligations.

Which should you choose?

Generally, a Sole Trader structure is great for low-risk businesses, freelancers, or side-hustles just starting out. A Company structure is strongly recommended if your business carries a higher risk of being sued, if you plan to employ staff, if you need to raise capital from investors, or if your business generates significant profit.

Next Steps: If you are unsure which structure is best for your specific situation, contact the team at Loyal Bright Accountants. We can help you weigh the pros and cons and handle the complete ASIC and ATO registration process for you!