When it comes to the question of choosing the right type of structure to start your business, between a sole trader and a company, you can easily find their differences either from the ATO website or the Australian Government Business website if you are keen to study it in detail.

However, if reading long jargon texts is not really your thing and you are up for a quickie in really simple words, then this post is for you.

The first thing you probably want to know is the costs. Below is a snapshot of the setup costs in comparison:

Also bear in mind that, a sole trader’s business profit and loss is included as part of your personal tax return, whereas company must do a separate tax return each year. There is also an ASIC annual review fee ($273 for the year 2020) for companies.

So it is clear that a company comes with higher costs of set-up and ongoing compliance. however, these costs shouldn’t be the main deciding factor.

You generally would be better off to go for sole trader if one or more of the following is the case:

  • the total of your annual business income plus income from other sources (eg. employment salary, rental property etc) is expected to be low (say, below $180K)
  • you are not hiring staff
  • your business activity is not complex, mostly just providing services with your own professional skills or tools such as self-employed consultants, tradies, artists etc.
  • it is a side business only (eg. part-time eBay sellers)
  • you don’t have a physical business premises separate from home
  • you are not looking to expand, scale or sale in the foreseeable future

and below are the common reasons why you would want to start off with a company or switch from a sole trader:

  • you want your business to grow continuously and having a business name with “Pty Ltd” will help improve the image or credibility in your industry
  • you want to introduce other investors in the business
  • your business is / will be consistently hiring staff
  • you plan to take down a business loan to fund business running/growing
  • you want to protect your personal assets against business creditors
  • yourself are a higher income earner in your personal tax return

After choosing the right type of business structure, what happens next? Check out my next post: Sole Trader Vs Company II.
Still not sure which type of structure suits you the best? or need help with setting up the business? Contact us now for a free initial consultation.



Please note that this post is intended to be a general guide only, and should not be seen to constitute legal or tax advice. Where necessary, you should seek a second professional opinion for any legal or tax issues raised in your personal or business tax affairs.

Emma Zhao

Emma Zhao

Chartered Accountant | Registered Tax Agent | SMSF Speacialist™ emma@sencilloaccounts.com.au