Choosing the right business structure is one of the most important decisions you will make. Each structure has different tax rates, liability protections, and compliance obligations. Based on the ATO business structures guide.
The Four Main Structures
Sole Trader
- Tax: Income taxed at individual marginal rates (up to 45% + Medicare levy)
- Liability: Unlimited personal liability
- Setup: Simplest and cheapest ??? just register an ABN
- Compliance: Lowest ??? lodge individual tax return
- Best for: Freelancers, consultants, and small service businesses
Company (Pty Ltd)
- Tax: Flat 25% (small business) or 30% (larger companies)
- Liability: Limited ??? company is a separate legal entity
- Setup: Register with ASIC, obtain ACN, Director ID required
- Compliance: Highest ??? annual review, financial reporting, director duties
- Best for: Businesses seeking growth, investment, or limited liability
Trust (Discretionary/Family)
- Tax: Trustee pays tax on undistributed income; distributed income taxed at beneficiary rates
- Liability: Trustee is liable; beneficiaries generally protected
- Setup: Trust deed required, TFN and ABN application
- Compliance: Annual trust tax return, distribution resolutions
- Best for: Family businesses, asset protection, income splitting
Partnership
- Tax: Partnership lodges a return but does not pay tax ??? each partner taxed on their share
- Liability: Joint and several liability (each partner liable for all debts)
- Setup: Register ABN, partnership agreement recommended
- Compliance: Partnership tax return plus individual returns
- Best for: Professional firms, joint ventures, business partners
Key Considerations
- Tax effectiveness vs compliance cost
- Asset protection and liability exposure
- Future growth and exit strategy
- Funding requirements (investors prefer companies)
- Flexibility to bring in partners or sell the business
Source: ATO ??? Business Structures