Choosing how to structure your business is one of the most consequential financial decisions a business owner makes — and one that is often made hastily, without a clear understanding of the trade-offs.
The structure you start with affects your tax liability, your liability exposure, your ability to bring in business partners, and the cost and complexity of your ongoing compliance. Getting it wrong doesn’t necessarily mean disaster — structures can be changed — but restructuring is costly and sometimes triggers tax.
Sole trader
What it is: You operate the business in your own name. You are the business.
Tax: Business income is your personal income. You pay tax at your marginal rate. In 2025–26, the top marginal rate is 47% (including the Medicare levy) on income above $190,000.
Pros: Simple and cheap to set up. Minimal compliance. Full control.
Cons: Unlimited personal liability — your personal assets are exposed to business debts and liabilities. No income splitting. Tax rate rises steeply with income. Harder to bring in equity partners.
Best for: Early-stage businesses with modest income, sole traders with limited liability risk, and businesses testing viability before committing to a more complex structure.
Partnership
What it is: Two or more people carry on a business together.
Tax: The partnership files a tax return, but doesn’t pay tax itself. Profits are distributed to partners and taxed at each partner’s individual marginal rate.
Pros: Simple to establish. Allows income splitting between partners.
Cons: Each partner is jointly and severally liable for the entire business’s debts. Limited flexibility. Not suitable for liability-intensive businesses.
Best for: Small professional practices (sometimes) and businesses with two equal owners where a more complex structure isn’t yet warranted.
Company
What it is: A separate legal entity owned by shareholders, operated by directors.
Tax: Companies pay tax at 25% (base rate for businesses with turnover below $50 million) or 30% (large companies). Profits distributed to shareholders as dividends, with franking credits attached.
Pros: Limited liability — shareholders are generally not personally responsible for company debts. Flat corporate tax rate is lower than the top personal rate. Easier to bring in investors or business partners. Continuity — the company survives if a director leaves.
Cons: More complex and expensive to set up and maintain. Annual ASIC fees. Dividends must be paid proportionally to shareholders (no flexibility on distribution timing). Losses can only be used within the company structure (cannot offset personal income).
Best for: Businesses with significant profit and liability risk, businesses with multiple stakeholders, and businesses looking to retain earnings for reinvestment.
Discretionary (family) trust
What it is: A trust structure where a trustee holds assets and distributes income to beneficiaries at their discretion.
Tax: Trusts do not pay tax themselves. Income is distributed to beneficiaries (family members) who pay tax at their marginal rates. A trustee has discretion over who receives income each year, enabling income to be directed to lower-income beneficiaries.
Pros: Maximum flexibility on income distribution. Effective for families with multiple members at different marginal rates. Asset protection (trust assets are harder to claim in personal disputes). 50% CGT discount on long-term assets.
Cons: Cannot retain profits (undistributed income is taxed at the top marginal rate via a trustee assessment). Trust losses cannot flow to beneficiaries — they’re trapped in the trust. More complex and expensive to administer.
Best for: Businesses generating above-average profit where the owners have family members at lower marginal rates, and where ongoing income splitting is a priority.
The hybrid approach
Many established business owners use a combination of structures. A common example: a discretionary trust holds the business and distributes income to a company as a corporate beneficiary. The company pays 25% tax and retains profits, while the trust retains the flexibility to distribute to individual beneficiaries in years where that’s more tax-effective.
When to review your structure
Your current structure may have been the right choice when you started. But if your revenue has grown significantly, you’ve taken on liability, you have family members who could receive income distributions, or you’re thinking about bringing in a business partner — it’s worth a review.
The cost of restructuring now is almost always less than the cost of leaving an inefficient structure in place for another decade. An AGS accountant can model the tax savings available under an alternative structure and help you make a fully informed decision.