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Sole Trader vs Company in Australia

Choosing the right business structure is an important decision when starting a business in Australia. This guide explains the key differences between sole traders and companies, including tax, liability and setup requirements.

What is a Sole Trader?

A sole trader is the simplest and most common business structure in Australia.​

Under this structure:

  • The individual and the business are legally the same entity

  • Income is reported in the individual tax return

  • An Australian Business Number (ABN) is usually required

 

Sole traders are commonly used by freelancers, consultants, tradespeople, Uber drivers and small service businesses.

What is a Company?

A company is a separate legal entity registered with the Australian Securities and Investments Commission (ASIC).​

Under this structure:

  • The company is legally separate from its owners

  • Business income is taxed at the company tax rate

  • Directors manage the company and shareholders own it

 

Companies are commonly used for businesses that expect growth, higher income or require asset protection.

Key Differences Between Sole Trader and Company

Setup Cost
Sole Trader: Low
Company: Higher​

Tax
Sole Trader: Personal tax rates
Company: Company tax rate

​Liability
Sole Trader: Unlimited
Company: Limited liability

​Administration
Sole Trader: Simple
Company: More compliance requirements

​

When a Sole Trader Structure May Be Suitable

A sole trader structure may be suitable if:​

  • You are starting a small business

  • Your income is relatively modest

  • You want a simple and low-cost setup

  • You operate as a freelancer or contractor

 

Many Uber drivers, consultants and tradespeople start as sole traders.

When a Company Structure May Be Better

A company structure may be suitable if:

  • Your business income is expected to grow

  • You want limited liability protection

  • You plan to employ staff

  • You want more flexibility for tax planning

 

Many growing businesses transition from sole trader to company as they expand.

Choosing the Right Business Structure

The most suitable business structure depends on your income level, risk exposure and future business plans.

An accountant can help you evaluate the tax implications and compliance requirements before making a decision.

Need help choosing the right business structure?

Our accountants can help you decide whether a sole trader or company structure is more suitable for your situation.

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