Plenty of successful businesses start as a sole trader. It is the simplest way to begin. At some point, though, the structure that got you started becomes the thing holding you back, and the question becomes not whether to incorporate, but when.
Here are the signals that usually mean it is time to look seriously at moving to a company, and what the switch involves.
The tax signal
As a sole trader, your business profit is taxed at your personal marginal rates, which rise as you earn more. A company pays a flat 25% (base rate entity) or 30%.
Once your profit is consistently more than you need to draw to live on, the gap between your marginal rate and the company rate starts to matter. Profit you leave in a company is taxed at the company rate rather than your higher personal rate, and only taxed in your hands when you draw it out. For a profitable business that does not need every dollar in the owner’s pocket, that difference compounds.
There is no magic number, but the conversation usually becomes worthwhile somewhere north of $100,000 in profit, depending on how much you draw. You can see the difference on the Foothold Advisory structure comparison calculator.
The risk signal
The bigger the business, the more it can be sued for or owe. As a sole trader, there is no line between you and the business, so that exposure reaches your personal assets.
If your business is taking on staff, signing larger contracts, carrying stock or debt, or operating anywhere with real liability, the limited-liability protection of a company becomes a genuine reason to switch, separate from any tax benefit.
The growth signal
Some plans are simply hard to execute as a sole trader.
- Bringing in a business partner or investor needs shares to divide, which means a company.
- Larger customers, government contracts and some lenders prefer or require a company.
- Building something you intend to sell is far cleaner through a company, and the small business capital gains tax concessions can apply on exit.
If you are heading toward a partner, a raise or a sale, incorporating earlier rather than later avoids restructuring under pressure.
What the benefits cost
A company is not free. Moving across brings real obligations.
- Setup and ongoing costs: incorporation, annual ASIC fees, a separate company tax return and more bookkeeping.
- Director duties and compliance you do not carry as a sole trader.
- Rules on taking money out: you cannot just draw cash the way a sole trader does. Money taken from a company is wages, dividends or a loan, and loans are governed by Division 7A.
The benefits have to outweigh these costs. For a small, low-risk business, a company can be more burden than benefit. For a growing, profitable, higher-risk one, the reverse is true.
What the switch involves
Moving from sole trader to company is not just a form. In broad terms it involves registering the company, transferring the business and its assets across, dealing with the tax consequences of that transfer (capital gains tax rollovers may be available), updating contracts, registrations, the ABN, GST and bank accounts, and moving staff and supplier arrangements over.
Done well, with advice, it is straightforward. Done casually, it can trigger unexpected tax or break things like finance and contracts, so it is worth planning rather than rushing at year-end.
Before you act
Deciding when and how to incorporate is a tax and legal decision that depends on your full circumstances, and the transfer itself can have capital gains tax and duty consequences. This article is general information to help you recognise the signals, not advice. Work the timing and the mechanics through with a registered tax agent and, where needed, a lawyer.
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. Incorporating and transferring a business 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.