The structure you trade through affects how much tax you pay, how well your personal assets are protected, how much it costs to run, and how easy it is to bring in partners or sell later. Here's a plain-English comparison.
Sole trader
The simplest and cheapest structure. You trade under your own ABN and business income is taxed at your personal tax rates.
- Pros: easy to set up, low running costs, full control
- Cons: no separation between you and the business — you are personally liable for its debts; income can't be split with family
- Often suits: new, low-risk businesses with modest profits
Company (Pty Ltd)
A separate legal entity registered with ASIC. The company pays tax on its profits at the company tax rate, and can pay franked dividends to shareholders.
- Pros: limited liability, a flat company tax rate, easier to bring in investors
- Cons: higher set-up and running costs, directors' duties, and strict rules (including Division 7A) on taking money out
- Often suits: growing businesses with higher profits or higher risk
Discretionary (family) trust
A trustee — often a company — runs the business for the beneficiaries, and can usually decide each year how to distribute income among them.
- Pros: flexibility to distribute income, asset protection, possible access to the CGT discount
- Cons: more complex and costly; distribution resolutions must be made on time; losses are trapped in the trust
Unit trust and hybrid structures
A unit trust gives fixed entitlements, which suits unrelated parties going into business together. A hybrid structure — for example a company with a family trust as shareholder — can combine benefits but needs careful advice.
Partnership
Two or more people carrying on business together. Each partner pays tax on their share of the profit at their own rates, and partners are generally jointly liable for the partnership's debts.
Which one is right for you?
There's no single answer — it depends on your expected profit, risk, family situation and future plans. We'll compare the options for your circumstances and handle the registrations. Learn more about our business set-up service or book a consultation.
This article is general information only and is not advice for your circumstances. Please contact us before acting on it.