A sole trader is simpler. A company is a separate legal entity.
A sole trader owns and operates the business personally. A company is registered with ASIC and is legally separate from its shareholders. That separation may help with ownership, investment and risk, but it also creates director duties, annual reviews, company records and additional costs.
Company and sole trader comparison
| Question | Sole trader | Company |
|---|---|---|
| Who owns the business? | The individual | The shareholders own shares in the company |
| Is it a separate legal entity? | No | Yes |
| Who is generally responsible for debts? | The individual | The company, although personal liability can still arise in some situations |
| ASIC company registration? | Not required | Required |
| Ongoing administration | Generally simpler | Company records, officeholder duties, annual reviews and fees |
| Business identifier | Usually an ABN | An ACN after registration, plus an ABN when obtained |
When a company may suit the business
A company may be worth considering when there will be more than one owner, when shares need to record ownership, when outside investment may be introduced or when the business needs a legal identity separate from the people involved.
Limited liability is not absolute. Directors can still face personal liability in some circumstances, and personal guarantees may be required by lenders, landlords or suppliers.
When a sole trader structure may suit
A sole trader structure is often simpler to start and maintain. It may suit an individual testing a straightforward business with no other owners. The individual is directly responsible for the business, including its debts, contracts and tax obligations.
Simplicity should not be the only factor. Changing structure later can have legal, tax, contractual and asset transfer consequences.
Do not choose on tax alone
Tax treatment differs between an individual and a company, but the best result depends on profit, how money will be used, future plans and the owner's wider circumstances. ASIC Assist can explain the registration and compliance steps, but a registered tax agent or accountant should advise on tax consequences.
Next step if you choose a company
Read the step by step guide to setting up a company in Australia. It covers directors, director IDs, shares, company names, addresses, registration, ACNs, ABNs and ongoing obligations.
Official source: ASIC, Sole trader? Partnership? Company? Trust?