Business Structures in Australia: Sole Trader, Partnership, Company and Trust Explained

Australia has four main business structures: sole trader, partnership, company and trust. Each structure changes how you are taxed, how much personal liability you carry, how you report to the Australian Taxation Office (ATO), and how you register the business. The right structure depends on your income, your risk, and your growth plans.

Choosing a business structure is one of the first decisions you make when starting a business in Australia, and it is one of the most consequential. The structure sets your tax rate, decides whether your personal assets are exposed if the business is sued, and determines your ongoing compliance costs. This guide explains each of the four structures, the tax treatment that applies to each, and the practical factors to consider when choosing. Structure advice is regulated work in Australia, so the guidance below is general information rather than personal advice.

What is a business structure?

A business structure is the legal form your business operates under. It defines who owns the business, who is legally responsible for its debts, how profits are taxed, and what you must report to the ATO and the Australian Securities and Investments Commission (ASIC). In Australia, the structure you choose is registered against an Australian Business Number (ABN), and, in the case of a company, against an Australian Company Number (ACN).

The structure matters because it decides three things at once. It sets your tax rate: a sole trader pays individual income tax rates up to 45 per cent, while a company pays a flat 25 or 30 per cent. It sets your liability: some structures protect your personal assets, others do not. And it sets your compliance load: a sole trader lodges one tax return, while a company lodges its own return, keeps ASIC records, and pays an annual review fee. Getting the business structure advice right at the start avoids costly restructuring later.

What are the four business structures in Australia?

The four business structures in Australia are the sole trader, the partnership, the company, and the trust. These are the structures recognised by the ATO and ASIC. Two related arrangements sit alongside them: a self-managed super fund (SMSF), a trust used to hold retirement savings, and a joint venture, a contractual arrangement rather than a standalone structure. The four core structures below cover almost every small and medium-sized business in Australia.

The list moves from the simplest and cheapest to establish, through to the most complex and most protective:

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  Sole trader: one person, trading under their own name and tax file number.
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  Partnership: two or more people or entities carrying on business together.
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  Company: a separate legal entity, usually a proprietary limited (Pty Ltd) company.
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  Trust: a trustee holding and running the business for the benefit of beneficiaries.

What is a sole trader?

A sole trader is an individual who owns and runs a business under their own name and tax file number. It is the simplest and cheapest business structure in Australia. There is no separation between the owner and the business: the person and the business are the same legal entity. A sole trader trades under an ABN, reports business income in their individual tax return, and pays tax at personal income tax rates.

How is a sole trader taxed?

A sole trader is taxed at individual income tax rates. Business profit is added to any other income the person earns, and tax applies on the total. For the 2025 to 2026 financial year, the rates are 16 per cent on income from $18,201 to $45,000, 30 per cent on income from $45,001 to $135,000, 37 per cent on income from $135,001 to $190,000, and 45 per cent on income above $190,000. The 2 per cent Medicare levy applies on top. A sole trader can claim business deductions to reduce taxable income and pay tax through the pay-as-you-go (PAYG) instalment system once the business is established. Our guide to sole trader tax returns explains the rates and a worked example in detail.

Pros of a sole trader structure

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  Low setup cost: registering an ABN is free, and there are no ASIC company fees.
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  Simple compliance: one tax return, minimal record-keeping, and no separate company lodgement.
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  Full control: the owner makes every decision and keeps all the profit.
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  Simple to close: winding up a sole trader business is straightforward.

Cons of a sole trader structure

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  Unlimited liability: personal assets, including the family home, are exposed if the business is sued or cannot pay its debts.
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  Higher tax on high profit: once profit is high, individual rates reach 45 per cent, above the company rate.
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  Harder to raise capital: a sole trader cannot issue shares, so growth funding relies on personal borrowing.
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  No income splitting: all profit is taxed in the owner's name.

The sole trader structure suits freelancers, tradespeople, contractors and small service businesses with modest profit and low liability risk. Many businesses start as sole traders and move to a company once profits grow.

What is a partnership?

A partnership is a business structure in which two or more people or entities carry on business together and share the income, losses, and control. A partnership has its own tax file number and ABN, and lodges its own partnership tax return, but it does not pay tax itself. Instead, each partner reports their share of the partnership's net income in their own tax return and pays tax at their individual rate. Australia recognises general partnerships and limited partnerships.

How is a partnership taxed?

A partnership does not pay income tax. The partnership lodges a return that reports total income and deductions, then distributes the net profit to the partners according to the partnership agreement. Each partner pays tax on their share at their own marginal rate. This flow-through treatment means the partnership itself is not taxed twice. A registered tax agent usually prepares the partnership return alongside each partner's individual return. See our partnership tax return service for how the split is calculated and lodged.

Pros of a partnership

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  Shared workload and capital: Partners combine money, skills and effort.
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  Low setup cost: A partnership is inexpensive to establish and simpler than a company.
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  Flow-through tax: Profit is taxed once, in each partner's hands.
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  Private: Partnership finances are not publicly disclosed the way company records are.

Cons of a partnership

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  Joint liability: In a general partnership, each partner is personally liable for the debts of the whole partnership, including debts created by another partner.
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  Shared decisions: Disputes between partners can stall the business.
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  Personal assets exposed: General partners do not have the asset protection a company offers.
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  Changing partners is disruptive: A partner leaving or joining can dissolve and re-form the partnership.

A partnership suits family businesses, professional practices, and ventures where two or more people want to test a business idea together before committing to a company. A formal partnership agreement is strongly recommended, and partnership registration handles the ABN, tax file number and GST setup.

What is a company (Pty Ltd)?

A company is a separate legal entity that is owned by shareholders and run by directors. The most common form for a small business is the proprietary limited company, shown as "Pty Ltd" after the business name. Because the company is a separate legal person, it can own assets, enter into contracts, sue and be sued in its own name. This separation is what gives a company limited liability: in most cases, the shareholders' personal assets are protected if the company runs into trouble. A company is registered with ASIC and receives an ACN.

How is a company taxed?

A company pays a flat rate of company tax on its profit. The base rate is 25 per cent for a base rate entity, which broadly means a company with turnover under $50 million that earns most of its income from active business rather than passive investments. Other companies pay 30 per cent. The company rate does not rise with profit, which is the key difference from individual rates. Profit paid to shareholders as dividends carries franking credits for the tax the company has already paid, so the same profit is not taxed twice. A company lodges its own company tax return each year, separate from the owners' personal returns.

Pros of a company

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  Limited liability: shareholders' personal assets are generally protected from company debts.
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  Flat, capped tax rate: 25 or 30 per cent, which is lower than the top individual rate.
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  Easier to raise capital: a company can issue shares to investors.
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  Continuity: the company continues to exist even if an owner leaves or passes away.
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  Credibility: a Pty Ltd structure can improve standing with clients, lenders and suppliers.

Cons of a company

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  Higher setup and running costs: ASIC registration, an annual review fee, and separate accounting.
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  More compliance: the company keeps registers, lodges its own return, and meets director obligations.
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  Directors' duties: directors carry legal responsibilities and can be personally liable for certain breaches.
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  Profit is locked in the company: money taken out as wages or dividends is taxed in the owner's hands.

A company suits growing businesses with higher profit, real liability risk, or plans to bring in investors. The Kalculators advise on structure first, then handle company registration, including the ACN, ABN, and tax registrations, all-inclusive.

What is a trust?

A trust is a structure where a trustee holds and operates the business for the benefit of beneficiaries. The trustee, which can be an individual or a company, is legally responsible for administering the trust and distributing its income in accordance with the trust deed. The most common form for business and family use is the discretionary trust, also called a family trust, where the trustee decides how to distribute income among the beneficiaries each year. Trusts are widely used in Australia for asset protection, tax planning and estate planning.

How is a trust taxed?

A trust generally does not pay tax on the income it distributes. Instead, the beneficiaries pay tax on their share of the trust's income at their own marginal rates. This allows income to be distributed across family members in lower tax brackets, which is the main tax advantage of a discretionary trust. Any income the trust retains rather than distributes is usually taxed at the top marginal rate, so trusts normally distribute all income each year. A trust lodges its own trust tax return, and a corporate trustee adds a further layer of asset protection. Because trust taxation is complex, it is the structure most likely to need a registered tax agent.

Pros of a trust

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  Asset protection: assets held in trust are separated from the beneficiaries' personal estates.
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  Income splitting: a discretionary trust can distribute income to beneficiaries on lower tax rates.
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  Estate planning: a trust can pass control of assets across generations.
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  Flexibility: the trustee can vary distributions year to year.

Cons of a trust

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  Complex and costly to set up: a trust deed, a trustee, and careful ongoing administration.
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  Cannot distribute losses: trust losses are trapped in the trust rather than passed to beneficiaries.
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  Higher compliance: annual distributions must be resolved and documented correctly.
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  Retained income penalty: undistributed income is taxed at the top rate.

A trust suits family businesses, investors, and owners who want asset protection and flexible income distribution. Setting one up correctly is specialist work, and our trust registration service covers the deed, ABN, tax file number and structure advice.

Business structures compared at a glance

The table below compares the four Australian business structures across the factors that matter most when choosing: how each is taxed, who carries liability, the setup cost, and the compliance load. Use it as a quick reference, then read the section on how to choose for the reasoning behind each factor.

Sole trader vs company: which pays less tax?

A company usually pays less tax than a sole trader once profits are high, because the company rate is capped at 25 or 30 per cent, while individual rates rise to 45 per cent. At a lower profit, a sole trader often pays less overall, because individual rates start at 16 per cent and the tax-free threshold applies. The crossover point depends on the profit level and the amount of money the owner needs to draw from the business.

The comparison is not only about the headline rate. A sole trader keeps all profit personally and pays tax on all of it in the year it is earned. A company can retain profits within the business, taxed at the flat company rate, and the owner pays personal tax only on the wages or dividends they actually take out. This gives a company owner more control over the timing of personal taxes. Against that, the company incurs higher setup costs, an annual ASIC review fee, and a separate tax return.

As a general guide, the sole trader structure tends to suit businesses with lower profits and low risk, while a company becomes attractive once profits are high enough that the flat rate saves more than the additional compliance costs. The right answer depends on your numbers, so it is worth modelling both before you decide. Our team can run the comparison as part of business structuring advice.

How do you choose the right business structure?

To choose the right business structure, weigh six factors against your own situation. No single structure is best for every business; the right one balances tax, protection and cost for your circumstances.

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  Liability risk: if your business carries a real risk of being sued or owing debts, a company or a trust with a corporate trustee protects your personal assets. A sole trader and a general partnership do not.
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  Profit level: higher profit favours a company's flat 25 or 30 percent rate over individual rates that reach 45 percent.
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  Number of owners: one owner points to a sole trader or company; multiple owners point to a partnership, company or trust.
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  Income splitting: a discretionary trust or a company can distribute income across family members, which a sole trader cannot.
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  Growth and investment: if you plan to raise capital or bring in investors, a company can issue shares.
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  Setup and running cost: a sole trader is cheapest to start and run; a company and a trust cost more but offer more protection.

Because the choice affects tax, liability, and cost, most Australian businesses seek professional advice before registering. Structure advice is regulated work, and The

Kalculators provide it under full Registered Tax Agent authority before handling business registration across all four structures.

Can you change your business structure later?

Yes, you can change your business structure as your business grows, and many businesses do. A common path is to start as a sole trader, then move to a company once profit rises or liability risk increases. Changing structure has tax and legal consequences, including possible capital gains tax on assets transferred to the new entity, so it should be planned rather than rushed. Small business capital gains tax concessions and rollover relief can sometimes reduce or defer the tax on a restructure. Planning the change with a registered tax agent helps ensure the transition is compliant and cost-effective.