The right business structure in Australia depends on the size, type, risk tolerance, and future goals of the business, balancing factors like liability, taxation, control, and costs.

Over 60% of Australian businesses start as sole traders, but nearly 1 in 3 restructure within the first 5 years due to tax or liability issues (ATO 2024).

Starting a business is exciting, but your first big decision is choosing the right business structure.

This choice will affect your taxes, legal protection, and growth opportunities for years to come. Many small business owners in Australia rush into it, but the right choice saves you money, protects your assets, and sets up your business for success.

The structure you select affects your taxes, personal liability, funding options, legal obligations, and how you operate daily. There are several common structures including sole trader, partnership, company, and trust.

Sole traders offer simplicity but unlimited liability, companies provide asset protection with higher compliance costs, partnerships suit collaborative ventures, and trusts excel at asset protection and tax planning.

Did you know ASIC company registration fees have increased to $611 (July 2025)? Choosing the wrong structure now could cost you not just in setup, but in higher tax and compliance fees later.

What is Business Structure?

A business structure is the legal framework that defines how your business operates. It influences how much tax you pay and handles legal responsibilities.

Your business structure determines who owns your business, who makes decisions, how profits are shared, and most importantly, who’s personally responsible if things go wrong.

This single decision affects your tax rates, personal liability for business debts, compliance requirements, and ability to raise funds or bring in partners.

Australia offers different tax rates for 2025: 25% for eligible small businesses and 30% for larger companies, making structure choice critical for tax efficiency.

Why it matters

Taxes – Different structures have different tax rates.
Liability – Protect your personal assets from business debts.
Growth – Some structures are easier to scale.

According to business.gov.au, your choice of structure determines how you pay tax, your reporting obligations, and whether your personal assets are protected.”

Types of Business Structure

Sole Trader
Sole Trader is the simplest structure, offering complete control and easy setup. However, you face unlimited personal liability – your personal assets are at risk if business debts can’t be paid.
1. Simple & cheap to set up – just need an ABN.
2. You’re personally responsible for debts (unlimited liability).
3. Taxed at individual rates.
4. Best for freelancers, tradies, and consultants.
5. But beware: as a sole trader, you have no asset protection; your house, car, and savings could be at risk
Partnership
Partnership is Ideal for collaborative ventures where 2-20 people share management and profits. Partners split income tax obligations, but each partner faces potential liability for all business debts.
1. 2+ people share profits and losses.
2. Easy to start with a partnership agreement.
3. Joint liability – each partner is responsible for the debts.
4. Suitable for small joint ventures and professional services.
Company (Ptv Ltd)
Company creates a separate legal entity registered with ASIC, protecting your personal assets from business liabilities. Companies pay tax at flat corporate rates.
1. A separate legal entity registered with ASIC.
2. Limited liability – shareholders’ personal assets are usually protected.
3. Corporate tax rate applies.
4. Better for startups and businesses seeking growth.
5. While offering limited liability, companies must file annual ASIC reports and pay review fees of $329/year, so ongoing costs are higher.
Trust
Trust offers flexible income distribution and strong asset protection, with the trustee managing assets for beneficiaries. Complex to establish but excellent for family businesses.
1. Assets managed by a trustee for beneficiaries.
2. Strong for asset protection and flexible income distribution.
3. Complex setup (trust deed required).
4. Popular for family businesses and estate planning.
5. Trusts can protect assets, but setup is complex and costly often best only for family businesses or estate planning.

Recommended Read: How to Register a Trust in Australia?

Why Choosing the Right Business Structure Matters?

Many small businesses pay thousands extra in tax each year simply because they chose the wrong structure. Your business structure choice creates effects throughout your entire business life:

Impact on taxation: Different structures face different tax treatments. Sole traders pay individual income tax rates up to 47%, while eligible companies enjoy a reduced rate of 25% for tax-efficient business structures in Australia. So, the sole trader pays more than the other structures.
Legal compliance: Each structure has specific legal obligations. Companies must file annual reports with ASIC. Sole traders have minimal requirements than other business structure.
Influence on growth potential: Your structure affects your ability to raise capital and bring in investors. Companies can issue shares to investors, while sole traders must rely on personal borrowing capacity.
Long-Term Impact: The business structure affects taxes, liability, and business operations for the long-term. But there is also a flexibility to grow the structure and pay less tax.

The wrong structure may cost you thousands in extra tax or expose your personal assets to business risks.

Key Factors to Consider When Choosing Your Business Structure

The key factors to choose a business structure are:

Liability and legal protection: You need to consider your industry’s risk level. High-risk businesses benefit from company structures that protect personal assets, while low-risk consulting work might suit sole trader structures.

Also, question yourself: Do I need protection for personal assets?

Tax implications and efficiency: You must analyse potential income levels and tax rates. The difference between 25% company tax and 47% individual tax rates adds up quickly for the best business structure for small businesses in Australia.

Also, question yourself: Which structure lowers my tax bill?

Compliance and reporting obligations: You must understand that companies require annual ASIC filings and detailed record-keeping, while sole traders have minimal ongoing obligations.

Also, question yourself: How much admin can I manage?

Cost of setup and ongoing administration: the company registration costs $611 (as of 1 July 2025) with annual review fees of $310, compared to free sole trader registration, from simple ABN registration to ASIC & trust deeds.
Ownership and management flexibility: Know that the companies offer sophisticated ownership structures, while sole traders maintain complete control.

Also, question yourself: Do I plan to grow, bring in partners, or seek investment?

Future Growth & Scalability: If you plan to bring in investors or scale nationally, your structure should allow it without forcing a costly restructure.

Did you know? You can be fined up to $13,750 for trading without proper registration in Australia (ASIC, 2025).

Step-by-Step Guide to Choosing the Right Business Structure

Step 1: Assess your business goals

First, define your 5-year revenue targets and identify risks. Then, consider future partnership plans like growth, lifestyle and asset protection.

Step 2: Consult with professional accountants

Secondly, consult with professionals and follow their advice. You must understand current tax laws and compliance requirements.

Step 3: Understand registration requirements

Different structures require different registrations through the Business Registration Australia processes. You need to register with ASIC for companies to get your ABN.

ABN registration (free for all structures)
Business name registration ($42-$98)
ASIC registration fee is $611 (as of 1 July 2025)
Trust establishment (requires legal documentation)

Step 4: Evaluate tax obligations

You need to calculate potential tax savings under different structures and available deductions with the help of the ATO & professionals

Step 5: Set up compliance

At last, you must do bookkeeping, annual reports, and trust deeds if required.

Not sure which way to go? Contact ISM Accountant and book free consultation to weigh up tax savings and liability protection before you register.

Expert Guidance and Professional Advice Recommendations

Follow these tips:

Consult Professionals: You can engage with ISM Accountants and legal advisors to tailor the structure to your needs.
Ongoing Support: Also, you can seek advice as your business evolves to ensure the structure remains optimal.
Resources: Make sure to utilise government resources like the ATO and ASIC for guidance.

Comparison of Australian Business Structures to Make Your Choice Clear and Easy

Feature / Structure	Sole Trader	Partnership	Company (Pty Ltd)	Trust
Legal Status	Business is not separate from the owner	Not separate from partners	Separate legal entity registered with ASIC	Trustee holds assets for beneficiaries
Liability	Unlimited – personal assets at risk	Joint and several liability among partners	Limited – shareholders’ personal assets generally protected	Trustee liable; beneficiaries’ assets usually protected
Taxation	Taxed as personal income (individual rates)	Partners taxed individually on their share of income	Corporate tax rate applies; dividends may be taxed	Income distributed to beneficiaries, taxed at their rates
Setup Complexity	Very simple – ABN registration only	Simple to moderate – partnership agreement recommended	Moderate to complex – ASIC registration, corporate governance	Complex – trust deed, trustee appointment, compliance obligations
Ongoing Compliance	Minimal – basic record-keeping	Moderate – record-keeping, agreement updates	High – annual reports, ASIC filings, director duties	High – annual resolutions, record-keeping, trust administration
Cost of Setup & Maintenance	Low	Low to moderate	Moderate to high	High
Ownership & Management	Single owner controls the business	2+ partners share management and profits	Shareholders own; directors manage	Trustee manages on behalf of beneficiaries
Scalability	Limited	Moderate	High – suitable for growth and investment	Moderate to high – often for family business or asset planning
Asset Protection	None	Limited – shared liability	Strong – company assets are separate	Strong – trustee shields beneficiaries’ assets
Best For / Suitability	Freelancers, sole operators, consultants	Professional services, small joint ventures	Startups, growing businesses, and companies seeking investment	Family businesses, estate planning, asset protection
Secondary Keyword Usage	Best business structure for a small business in Australia	Sole trader vs company vs trust in Australia	Tax-efficient business structures in Australia	Business structure comparison in Australia

Still unsure? Book a quick call with ISM – we’ll map out the best option for your business in 15 minutes.

Common Mistakes to Avoid while Choosing Business Structure in Australia

You must avoid these while choosing a business structure in Australia:

Choosing without professional advice: Many rush into sole trader structures for simplicity, only to realise later they need asset protection or face higher tax rates.
Ignoring growth potential: Starting as a sole trader might seem logical, but planning for partners or investors within 2-3 years often makes company structures more efficient.
Overlooking compliance: The ongoing burden of company compliance catches many owners by surprise.
Focusing only on setup costs: While sole traders cost nothing to establish, long-term tax and liability implications often outweigh initial savings.

According to ASIC, many businesses face penalties each year because they overlook compliance obligations when setting up their structure.

When and How to Change Business Structure?

You may need to change if:

Your business grows, and you seek investors.
You need better tax planning or liability protection.
Your compliance needs outgrow your current setup.

Process: Consult ISM Accountants → Register new structure with ASIC → Transfer assets → Update tax & banking.

Reasons for change include business growth requiring investor capital, increased liability exposure, or tax considerations as income levels change.

The change process involves consulting professionals, assessing new structure requirements, registering new entities, and transferring assets. Changes often trigger tax events and involve significant professional fees, so plan carefully with expert guidance.

How ISM Accountants Can Help You Choose the Right Structure?

ISM Accountants & Advisors in Perth offers reliable accounting, bookkeeping, tax, and financial services for small and medium businesses. We focus on honesty, accuracy, and timely results, helping clients achieve their financial goals. We offer expert tax advice, mortgage broking, and business support under one roof.

At ISM Accountants (Perth and across Australia), we provide:

Our Services Locations:

Ready to set up or restructure your business? Contact ISM Accountants today for personalised advice.

Final Thoughts

The right business structure is one of the most important decisions for Australian entrepreneurs. The impact on taxes, legal protection, and growth opportunities extends far beyond initial setup.

First, start with professional advice and consider long-term goals. Also, always remember that structures can be changed as your business evolves. The investment in proper structure selection pays dividends through years of optimised taxation and legal protection.

The right structure can save you tax and protect your assets. Don’t wait until the next tax year contact ISM Accountants today to set up your business structure correctly from day one.

Stop guessing and start building your business on the right foundation. Our specialists will analyse your situation and recommend the optimal structure.

Book Your FREE Consultation Today!

Frequently Asked Questions

What’s the easiest business structure to set up in Australia?

A sole trader is easiest, requiring only free ABN registration with no ongoing compliance obligations.

How do tax rates differ between sole trader, companies, and trust?

Sole traders pay individual rates (0-47%), companies pay 25% (small business) or 30% (larger companies), and trusts distribute income to beneficiaries at their individual rates.

Can I change my business structure later?

Yes, You can change your business structure later but changes involve complexity and costs including potential tax events and professional fees.

Do all businesses need an ABN?

Yes, an ABN is required for invoicing, GST, and registering for taxes.

How does liability protection vary between structures?

Sole traders and partnerships offer no asset protection, companies provide strong protection with only company assets at risk, and trusts can shield beneficiaries’ assets.

What is the best business structure for a small business in Australia?

The best business structure for a small business in Australia often starts as a sole trader for simplicity, but moving to a company can provide tax efficiency and liability protection as you grow.

How do I register my business structure with ASIC?

Companies and some trusts must register with ASIC. Sole traders just need an ABN.

What are the ongoing compliance requirements for a company or trust?

Company: annual ASIC filings, director duties, tax compliance.
Trust: trust deed, resolutions, detailed accounting.

What is the most tax-efficient business structure in Australia?

A company is generally the most tax-efficient for growing businesses because it pays a flat corporate tax rate of 25%, which is often lower than the personal tax rates for sole traders. Companies also offer asset protection and profit retention benefits.

When should I change from sole trader to company?

You should change when your business grows, profits increase, or you want to limit personal liability and access better tax planning. This usually happens when your income reaches a level where individual tax rates become less favorable compared to company tax rates.

Can I switch from trust back to company?

Yes, you can switch but it requires setting up a new company and legally transferring assets and operations. This process needs careful planning and compliance with tax and legal rules to avoid penalties and extra costs.