It is one of the first real decisions a business owner makes, and one of the easiest to get stuck on. Sole trader, company or trust. The structure you choose shapes your tax, your personal risk, your ability to bring in investors and what happens when you eventually sell or step back.
There is no single right answer. There is a right answer for your situation, and it usually changes as the business grows. Here is how the three compare.
Sole trader
The simplest structure. You and the business are the same legal person. You trade under your own name or a registered business name, you report the income in your personal tax return and you pay tax at your individual marginal rates.
- Strengths: cheap and quick to set up, minimal compliance, full control, easy to wind up.
- Trade-offs: your profit is taxed at personal rates, which climb as the business grows. There is no separation between you and the business, so your personal assets are exposed if something goes wrong. It is harder to bring in a partner or investor.
A sole trader structure suits a new or small business testing an idea, where profit is modest and risk is low.
Company
A company is a separate legal entity that you own through shares and run as a director. It pays its own tax, at 25% for a base rate entity or 30% otherwise, rather than at your personal rates.
- Strengths: profits are taxed at the company rate, which can be lower than your marginal rate, and profits retained in the company are not taxed in your hands until they are paid out. The company structure limits your personal liability in most cases, looks more credible to larger customers and lenders, and is the natural vehicle for bringing in shareholders or investors.
- Trade-offs: more cost and compliance (ASIC obligations, separate tax return, director duties), and rules like Division 7A that govern money you take out of the company. Profits eventually distributed as dividends are taxed in your hands, although franking credits prevent the profit being taxed twice.
A company suits an established, profitable business, one carrying real risk, or one heading toward a raise or a sale.
Trust
A discretionary (family) trust holds the business or its assets, with a trustee that distributes income to beneficiaries each year. The trust itself generally pays no tax if it distributes all its income. Instead, each beneficiary is taxed on their share at their own marginal rate.
- Strengths: flexibility to distribute income among family members, which can lower the overall tax paid, and a degree of asset protection because the assets are held by the trust rather than an individual.
- Trade-offs: more complex and costly to run, governed by a trust deed, and squarely in the sights of anti-avoidance rules. The ATO scrutinises distributions through provisions like section 100A and Part IVA, so income splitting has to be genuine and properly documented. Trusts also cannot distribute losses to beneficiaries.
A trust suits a business with family involvement, a need for flexible distributions, or assets worth quarantining, where the owner is willing to carry the extra complexity.
See the tax difference for yourself
The tax outcome is only one factor, but it is often the one people want to see first. The Foothold Advisory structure comparison calculator runs the same profit through all three structures so you can see the gap before you sit down with your accountant.
What actually decides it
Tax tends to dominate the conversation, but the structure decision rests on more than the lowest bill.
- Risk and asset protection: how exposed are your personal assets if the business is sued or fails.
- Growth plans: are you bringing in partners, investors or eventually selling.
- Family and income: would flexible distributions genuinely help, and to whom.
- Cost and complexity: a structure only earns its keep if the benefit outweighs the cost of running it.
The right structure also changes over time. Many businesses start as a sole trader and move to a company or a company-and-trust combination as profit and risk grow. Getting it wrong is expensive to unwind, so it is worth thinking past the first year.
Before you act
Choosing or changing a business structure is a tax and legal decision, and the right answer depends on your full circumstances. This article is general information to help you frame the conversation, not advice. Talk it through with a registered tax agent and, where assets or liability are involved, a lawyer, before you set anything up.
General information only. This article provides general information about Australian business and tax concepts and is current as at 3 June 2026. It does not take into account your objectives, financial situation or needs, and it is not tax, legal or financial advice. Foothold Advisory is not a registered tax agent. Choosing or changing a business structure has tax and legal consequences that depend on your circumstances. Before acting, obtain advice from a registered tax agent and, where relevant, a lawyer, and verify all figures against the ATO.