Choosing the Right Business Structure: Sole Trader vs. Company vs. Trust

Starting a new business or restructuring an existing one? The choice of business structure isn’t just a formality—it’s one of the most powerful tools for tax minimisation, cash flow management, and asset protection.

As business advisors and tax professionals, we regularly help clients weigh up the options between Sole Trader, Company, and Trust structures. Choosing the right one can save you thousands in tax, protect your personal assets, and help your business grow faster and smarter.

Here’s a practical breakdown to guide your decision:

Sole Trader: Simple, But Limited

Best for: Freelancers, trades, and low-risk startups

Pros:

• Low setup cost and simple compliance

• Full control of the business

• Losses may offset other personal income

Cons:

• You’re personally liable for all business debts

• Limited tax planning opportunities

• Harder to scale or bring on partners

Cash Flow & Tax Tip: Many sole traders forget to set aside funds for tax. Use a separate business savings account and automate 15–20% of income into it weekly to stay ahead of BAS and EOFY payments.

Company: Professional & Scalable

Best for: Growing businesses, startups seeking investment, high-income earners

Pros:

• Flat company tax rate (25% for base rate entities)

• Limited liability – separates personal and business assets

• Easier to scale, take on investors, and apply for grants

Cons:

• Higher setup and compliance costs

• Must comply with director duties and ASIC requirements

• Profits retained in the company until distributed (and taxed again)

Business Growth Hack: A company structure allows for smart tax planning—like splitting income through dividends or reinvesting retained profits into growth initiatives (and deductible expenses).

Trust: Flexible but Complex

Best for: Family businesses, asset protection, and discretionary income distribution

Pros:

• Ability to distribute income to beneficiaries for tax efficiency

• Strong asset protection in most cases

• Useful for estate and succession planning

Cons:

• More complex and costly to maintain

• Not suitable if profits are inconsistent or low

• Beneficiaries pay tax on distributed income

Tax Minimisation Alert: Trusts are powerful tools when used properly. But incorrect distribution minutes or misunderstanding beneficiary rules can trigger ATO audits or unintended tax bills.

Structure Mistakes We See Often (Real Case Study Snapshot)

“A new client came to us with a thriving eCommerce business still operating as a sole trader. They were paying 45% in tax on profits and had zero asset protection. We restructured to a company + family trust setup. Now they’re paying an effective tax rate of 26%, have protection from liability, and their family members legally receive income via the trust. Result? Over $40K saved in tax annually and peace of mind secured.”

When to Review Your Structure

Even if your business is already up and running, it might be time to reassess your setup if:

• Your income has significantly increased

• You're looking to expand, hire staff, or seek funding

• You’re concerned about asset protection or exit planning

• You’ve taken on a business partner or investor

Let’s Get Your Structure Right

Choosing the right structure isn’t about ticking a box—it’s about building a business that’s profitable, protected, and primed to grow. Whether you're just starting out or scaling up, we’ll guide you through the right structure for your situation, now and into the future.

📞 Call us today on 0451 -040-656

📧 Email info@streamlinedaccountants.com.au

Let’s talk strategy—not just tax.