Starting or growing your small business in Australia? One of the first big decisions you’ll make is choosing the right business structure for small business. And while it might seem like a formality, your structure affects everything from how much tax you’ll pay to how protected your personal assets are.
We get it most business owners are focused on turning ideas into action. But choosing the wrong structure can lead to expensive surprises later.
Let’s simplify and help you pick the setup that works best for your business goals, your budget, and your future.
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Book a free consultation with ISM Accountant’s expert today.
Understanding Business Structure for small business in Australia
Before you jump into branding and sales for your startup business in Australia, there’s one decision you absolutely shouldn’t rush: choosing your business structure. If you’re planning to start a business, partner with others, or go it alone as a sole trader, each choice has pros and cons.
You should be able to compare these few things and know what to keep in mind before you decide. If you’re unsure, don’t worry, we’ll also explain how we can help.
What is a Business Structure?
A business structure is the legal framework for how your business operates and interacts with the tax office, creditors, and the law. It helps you stay on top of your business debts, how the ATO will tax your profits, and what compliance obligations you’ll need to meet throughout the year.
Your business structure directly impacts:
- Personal liability: whether your home and personal assets are at risk if the business fails
- Tax treatment: how much you’ll pay and when you’ll pay it
- Compliance requirements: from simple sole trader records to complex company reporting
- Access to funding: what investment and loan options are available to you
- Flexibility for growth: how easily you can bring in partners or sell the business later
One of the most important distinctions is personal vs. business liability. As a sole trader, you’re personally liable for any business debts. While a company is a separate legal entity meaning your personal assets are better protected.
You’ll need to decide on a structure before you register a business or apply for an Australian Business Number(ABN).
Why is it Important for Small Businesses?
Business structure isn’t just about paperwork. It has real financial and legal consequences that affect your bottom line and peace of mind every single day. Many new business owners go with the easiest option just to get started and end up paying for it later.
Your Business structure affects:
- Taxes: Some structures (like companies) are taxed at a flat rate. Others (like sole traders) are taxed based on their personal income
- Liability: Do you want your personal assets on the line if things go wrong?
- Administration: Some structures are super simple, while others involve more paperwork.
- Funding: Investors are more likely to fund companies or trusts than sole traders.
- Legal Requirements: Structures like companies must follow ASIC rules and file regular reports.
The Australian Taxation Office (ATO) and Australian Securities and Investments Commission (ASIC) also have completely different compliance expectations, depending on your choice from simple sole trader record-keeping to comprehensive company reporting requirements.
Don’t leave it to chance.
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Types of Business Structures in Australia
In Australia, the main types of business structures are sole trader, partnership, company, and trust. You should select the appropriate business structure when launching or operating a business in Australia.
This choice affects a number of areas of your enterprise, such as management responsibilities, tax obligations, and legal liabilities. Understanding business structure matters whether you’re a sole proprietor, planning to create a partnership, considering forming a corporation, or researching trusts.
The main business structure types that are often used in Australia will be described in this part, along with how they impact the operations of your organisation.
Sole Trader
Being a sole trader in Australia, you are the boss of your business. There is no distinct legal entity; you simply operate under your own name or a registered business name that includes your ABN. Your personal tax return contains information about all of your income and expenses. It is easy to set up and affordable. You keep all of the profits but are personally liable for all debts and responsibilities. It is ideal for testing company concepts.
Tax reality:
- Taxed at personal rates (19%-47%)
- BAS required if GST turnover >$75,000
- Can offset business losses against other income
- Simple record-keeping (income/expenses)
Best suited for:
- Low-risk freelancers/consultants/creatives
- Solo tradies on small jobs
- Testing business ideas
- Simple, asset-light businesses
Key trade-off:
- Full personal liability assets at risk
- No asset protection on debts
- Harder to add partners or fund growth
Simple, low-cost, but high personal risk ideal for solo, low-risk operators.
Recommended Read: How to Check if Business Name is Registered?
Partnership
A partnership is essentially two or more persons (up to 20) who enter into business together and share earnings, losses, and obligations. It is a step above from single trading, but still reasonably straightforward to set up. You’re essentially several sole traders operating under a single business framework.
Each partner reports their portion of the profit or loss on their personal tax return; the partnership pays no taxes. Revenue can, however, be allocated based on effort, contribution, or any other arrangement that works for you.
Tax treatment:
- Each partner pays taxes on their own profit share.
- A partnership must file a separate tax return but not pay taxes on its own if its GST turnover exceeds $75,000.
- Partners’ other income may be offset by partnership losses.
Ideal for:
- Closely collaborating family companies, Professional firms (consultants, accountants, lawyers)
- Partnerships that bring together various skill sets
- dependable, long-standing functional connections
Critical factor:
- Essentially, a detailed partnership agreement covers profit sharing, decision-making, exits, and dispute resolution. Without it, the risk of major conflict and complications increases.
Company
The company exists independently of its owners (shareholders) and can operate, sue, and be sued in its own right. This creates a barrier between your personal and professional lives by allowing the corporation to hold property, establish contracts, and assume liabilities in its own name.
Adding “Pty Ltd” to your company’s name might increase supplier and consumer confidence. Without fully reorganising the business, you can give shares to partners, investors, and family members.
Tax advantages:
- Flat corporate tax rate: 25% for eligible small companies (vs individual rates up to 47%)
- Tax planning flexibility: choose when to distribute profits or retain earnings
- Franking credits: shareholders get tax credits for company tax paid on dividends
- Asset protection: company assets separate from personal assets
Ideal for businesses that:
- Plan to scale operations (employees, multiple locations)
- Seek investors or lenders who prefer companies
- Face higher liability risks (manufacturing, construction, professional services)
- Want succession planning ease (ownership transfer, new shareholders)
Compliance reality:
- ASIC obligations: annual statements, registered office, director duties
- Higher setup and ongoing costs: registration, constitution, ASIC fees
- More complex accounting: company tax returns, resolutions, shareholder records
- Directors have legal duties with potential personal liability
For 2025, the eligible small business company tax rate is 25%, applicable if turnover is under $50 million and 80% or less of income is passive; otherwise, the standard 30% rate applies. This structure offers substantial tax advantages and asset protection for growing and higher-risk businesses despite increased compliance complexity.
Trust
In a trust arrangement, a trustee, typically a company manages the firm on behalf of beneficiaries, separating ownership and management of corporate assets. You can transfer income to family members, other entities, or keep it in the trust.
You have the option to keep your revenue in the trust or give it to other people or organisations. There is an extra degree of security because business assets are kept apart from personal assets. It facilitates the transfer of corporate advantages to the following generation without altering the ownership structure.
Tax flexibility and complexity:
- Distributing income to beneficiaries in lower tax brackets may reduce overall tax.
- Undistributed trust income taxed at the highest marginal rate (47%) encourages annual distribution.
- Capital gains can be distributed to beneficiaries, sometimes with CGT discounts possible.
- Trust losses can’t generally be distributed to beneficiaries or offset against other income.
Best suited for:
- Asset-heavy businesses (property development, investment holdings, valuable equipment).
- Multi-generational/family planning (benefit children/grandchildren while retaining control).
- Professional practices leveraging asset protection and income streaming.
- Investment structures (business premises/investments held separate from trading).
Complexity considerations:
- Higher setup costs: legal fees for trust deed, tax advice; average setup around $3,500, annual costs ~ $2,500.
- Requires sophisticated records: detailed beneficiary/deed/distribution minutes, annual trust tax returns.
- Significant trustee responsibilities: legal duties, compliance, and possible personal liability.
- Regular reviews: trust deeds may need updating as tax laws/family needs evolve.
Always get advice from tax and legal professionals. Although trusts provide many advantages, their complexity and potential legal ramifications make professional advice essential to ensuring alignment with your goals and circumstances.
Recommended Read: How to Register Trust in Australia?
Comparing Business Structures: Which One is Right for You?
Depending on the structure you select, businesses in Australia might range in complexity and cost. Here’s a simple breakdown of upfront costs for each common business structure:
Business Structure | What’s Involved | Estimated Upfront Cost | Ideal For |
Sole Trader | – ABN registration (free) – Optional business name registration (~$40 for 2 years) | $0 – $40 | Individuals testing a business idea with minimal setup costs |
Partnership | – ABN registration (free) – Optional business name (~$40) – Legal partnership agreement ($500–$1,500) | $40 – $1,540 | Two or more people going into business together |
Company | – ASIC registration ($540) – Optional professional help ($300–$800) – Ongoing ASIC fee ($315/year) | $840 – $1,340 | Businesses want a formal structure and liability protection |
Trust | – Trust deed preparation ($800–$2,500) – Corporate trustee setup ($540) – Legal/tax advice ($500–$1,500) | $1,300 – $4,500 | Complex setups involving asset protection and family planning |
Quick Takeaway:
- Sole trader: Easiest and cheapest way to get started.
- Partnership: Slightly more formal, best with a clear agreement.
- Company: Offers liability protection but comes with more admin.
- Trust: Most expensive, best suited for long-term asset protection and tax planning.
Recommended Read: What is the Difference Between TFN and ABN?
Common Mistakes When Choosing a Business Structure
Selecting the wrong business structure is one of the most costly mistakes small business owners make – and unfortunately, it’s often driven by short-term thinking rather than long-term strategy.
Here are the traps we see clients fall into time and again.
- Choosing the cheapest structure without thinking ahead: Sole trader is easy and free but can get costly with growth, risks, or tax.
- Overlooking tax impact: High incomes can mean paying up to 47% tax as a sole trader vs 25% as a company, potentially losing thousands.
- Ignoring asset protection: If sued or your business fails, your home and savings could be at risk as a sole trader.
- Confusing ABN and ACN: ABN is for any business; ACN is for companies mixing these up can cause compliance problems.
- Skipping expert advice: Professional help upfront can prevent expensive mistakes, tax issues, and legal trouble down the road.
The cost of getting it right from the start is almost always less than the cost of fixing it later.
Recommended Read: What is the Difference Between ACN and ABN?
Key Terms to Know for Australian Business Owners
Although registering a business in Australia can seem intimidating, this essential terminology serves as the cornerstone for how your company communicates with authorities and conducts lawful business.
- ABN (Australian Business Number): Your business’s unique 11-digit ID, essential to operate legally in Australia. Needed for issuing invoices, claiming expenses, opening business bank accounts, and dealing with suppliers. It’s like your business’s tax file number and must be on all official documents.
- ACN (Australian Company Number): A 9-digit number issued only to companies by ASIC. It identifies a company as a separate legal entity and must appear on company documents, letterheads, and websites. Sole traders and partnerships do not have an ACN.
- TFN (Tax File Number): Everyone needs one. Sole traders and partnerships use the owners’ personal TFNs for tax purposes, while companies get their own unique TFN from the ATO to lodge tax returns and manage tax obligations.
- GST (Goods and Services Tax): If your business makes $75,000 or more annually, you must register for GST. This means adding 10% tax to most sales and claiming GST credits on purchases. GST is tax collected on behalf of the government, not extra profit.
- BAS (Business Activity Statement): A regular (usually quarterly) report to the ATO required if you’re GST-registered or have employees. It details GST collected and paid, PAYG withholding for staff, and other tax obligations, separate from your annual tax return.
These terms will make conversations with your accountant, bank, and suppliers much smoother and help you understand exactly what obligations come with your chosen business structure.
Changing Business Structure
Your company’s structure is flawed from the start. The structure of the majority of successful firms really changes as they expand, so what works well when you first start out might not be the ideal option five years later. The evolution is not the result of bad starting choices, but of astute business strategy.
Signs it’s time to consider a change:
- Growth triggers: when you’re consistently earning over $100,000, the company tax rate becomes significantly more attractive than individual rates
- Partnership opportunities: bringing in business partners or investors is much cleaner with a company or trust structure
- Asset accumulation: as your business builds valuable assets, equipment, or property, protection from personal liability becomes crucial
- Employee expansion: hiring staff often makes company structures more practical for payroll, insurance, and legal clarity
- Risk management: if your business activities or client base create higher liability exposure than when you started
Current contracts can often be transferred; however, if you change your business structure (for example, from a sole trader to a company or trust), you will generally need to apply for a new ABN.
ABNs are entity-specific and do not transfer between different legal structures. Clients and stakeholders may notice changes to your business registration details, but the transition can be managed smoothly with careful planning.
The transition actually involves:
- Asset transfers – moving business assets, contracts, and intellectual property to the new structure
- Tax clearances – ensuring all obligations under the old structure are met before switching
- New registrations – setting up company or trust registrations while maintaining business continuity
- Banking and supplier updates – updating account details and informing key stakeholders of the change
The key to transition properly and getting professional advice is to ensure you don’t trigger unnecessary tax compliance issues. Most structure changes can be completed within a few weeks with proper preparation, and the long-term benefits usually far outweigh the short-term administrative effort involved.
Thinking of changing your business structure? Let ISM handle the legal, tax, and registration steps for you. Talk to our Business Structuring Expert
How Much Does It Cost to Set Up a Business Structure in Australia?
The price difference between structures reflects their complexity and ongoing compliance requirements.
Business Structure | Setup Components | Estimated Cost Range (AUD) | Notes |
Sole Trader | – ABN registration (free) – Business name (if needed): ~$40 | $0 – $40 | Best for low-risk, solo operators or testing business ideas |
Partnership | – ABN registration (free) – Business name: ~$40 – Partnership agreement: $500–$1,500 | $40 – $1,540 | A legal agreement is strongly recommended to prevent disputes |
Company | – ASIC registration: $540 – Setup assistance (optional): $300–$800 – ASIC annual fee: $315 | $840 – $1,340 (setup only) + $315/year | Offers legal protection and growth potential, but higher compliance |
Trust | – Trust deed: $800–$2,500 – Corporate trustee (optional but common): $540 – Legal/tax advice: $500–$1,500 | $1,300 – $4,500 | Great for asset protection and tax flexibility; complex to manage |
The hidden costs to consider:
- Professional guidance – while not legally needed, paying $300-500 on an initial accounting or legal consultation typically saves thousands in errors and missed chances.
- Consider annual ASIC fees for corporations, accounting charges for tax returns, and legal reviews when circumstances change.
- Different structures may require varying levels of professional indemnity or public liability coverage.
Remember that the cheapest option initially is not usually the most cost-effective in the long run. A structure that saves you thousands of dollars in taxes per year or protects valuable personal assets quickly recoups its higher setup expenses.
Australian Government Rules for Business Structures
Every business structure in Australia operates within a framework of legal and tax obligations overseen by government agencies. These requirements from the start help you stay compliant and avoid costly penalties down the track.
- Sole Trader: Simplest and fastest to set up, with the lowest compliance burden. You report all business income and expenses on your personal tax return. However, you carry unlimited personal liability, meaning personal assets (including your home) are at risk if business debts or legal issues arise.
- Partnership: Requires its own ABN and TFN and files a partnership tax return showing income and loss distribution among partners. Each partner includes their share in their personal tax returns. All partners share unlimited liability jointly and individually for partnership debts and actions, so each is responsible for the others’ business obligations.
- Company: A separate legal entity registered with ASIC that receives an ACN. It must comply with the Corporations Act 2001, including lodging annual statements, maintaining corporate records, and directors fulfilling legal duties. Companies file their own tax returns and pay corporate tax rates (generally 25% for small businesses), offering asset protection from personal liability. This comes with higher setup and ongoing compliance costs and complexity.
- Trust: Created by a carefully crafted trust deed that outlines the rights and responsibilities of trustees and beneficiaries. The highest tax rate is applied to undistributed income, although trust income is normally distributed to beneficiaries annually and taxed at their personal rates. In addition to having substantial legal obligations, trustees are required to maintain thorough distribution and decision-making records. Although they come with complicated legal and regulatory requirements, trusts offer asset protection and tax flexibility.
The key is matching your compliance capacity with your structure choice – there’s no point choosing a complex structure if you can’t meet its ongoing obligations properly.
Recommended Read: Professional Tax Accounting Services in Perth
Do You Need Professional Help?
If you’re still unsure which structure suits you, that’s okay. This decision can feel overwhelming but it doesn’t have to be. Our team at ISM Accountant works with hundreds of small business owners just like you to:
- Select the right business structure
- Handle all the setup and registrations
- Ensure you’re 100% ATO and ASIC compliant
- Build a long-term plan for tax and growth
“Avoid headaches later—let’s get it right from the start.”
Final Thoughts
Your business structure is the skeleton of your entire business. Choosing the right one means you’ll have fewer surprises, better protection, and more confidence moving forward.
Still feeling unsure? Let us help you figure it out with confidence.
Contact our ISM team today for personalised advice and start strong with the right structure.
FAQ's
The best business structure for small business depends on your goals. Sole traders suit low-risk startups. Companies are better for growth and liability protection.
The types of business structures in Australia are sole trader, partnership, company, and trust.
If you want simplicity, be a sole trader, but if you want legal protection and room to grow, consider a company.
The tax for different business structure in Australia depends on income. Sole traders may pay less at low incomes where as companies are more efficient at higher earnings.
Yes, you can change your business structure. It’s common for many businesses to start as sole traders and upgrade when the time is right.
ABN is for all businesses, while ACN is only for companies and is issued by ASIC.
Yes, you need to register a business only if you’re trading under a name different from your personal or company name.
No, you don’t need a tax accountant to set up your small business. But getting it right the first time can save you time, money, and legal headaches.
