There is no universally "best" business structure. There is only the structure that's best for your numbers, which is a much less Instagrammable answer.
Every year, someone asks whether they should "become a company" the way you'd ask whether you should get a gym membership, as if it's a general life upgrade rather than a decision with actual financial consequences either way. It depends entirely on your numbers, your risk, and your plans.
Why This Question Doesn't Have A One-Size-Fits-All Answer
Sole traders and companies are taxed completely differently, carry different compliance obligations, and offer different levels of personal asset protection. The "right" structure is the one that matches your actual income, risk exposure, and growth plans, not the one your mate at the pub swears by.
How Sole Traders Are Taxed
As a sole trader, business profit is simply added to your personal income and taxed at your individual marginal rate. It's simple, cheap to run, and has minimal reporting obligations, but as profit grows, so does the tax rate applied to it.
How Companies Are Taxed
A company pays tax at a flat company tax rate, regardless of how much profit it makes, and profits distributed to you personally come with franking credits attached. It offers more structure and often more asset separation, but with meaningfully more compliance, reporting, and ongoing cost.
The Real Trade-Off: Simplicity vs Structure
A sole trader structure wins on simplicity and low cost. A company structure wins on tax planning flexibility and asset protection once profits and risk reach a certain point. Neither is universally "better": it's a genuine trade-off, not a status upgrade.
When Switching To A Company Usually Makes Sense
- Profit is consistently pushing you into higher personal marginal tax brackets.
- You want clearer separation between personal and business assets.
- You're planning to bring on investors, partners, or significant growth.
When Staying A Sole Trader Still Makes Sense
- Income is modest or genuinely variable year to year.
- Simplicity and low running costs matter more than tax planning flexibility right now.
- You're still validating the business and don't want the extra compliance overhead yet.
How Mr Figures Helps
Our professionals in the Financial & Business Advisory service look at your actual numbers (not a generic rule of thumb) to work out whether switching structures would genuinely help, and manage the entity change properly if it does. Where legal or specialist financial advice is needed to get it done right, we bring in the right people from our professional network.
Not Sure Which Structure Fits Your Numbers?
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Let's Discuss Your SituationSole Trader vs Company: Common Questions
There's no single magic number. Personal tax is progressive, so profit gets taxed at increasingly higher rates as it grows, while a company pays a flat rate regardless of profit size. A company tends to make sense once your marginal rate sits meaningfully above the company rate, especially if profit is retained rather than drawn out.
No. A company adds ongoing compliance costs: a separate tax return, more record-keeping, and annual fees, largely regardless of how the year went. For lower or variable income, the progressive personal tax scale can work in your favour in a lean year, so a sole trader can still come out ahead once running costs are weighed against the tax saved.
A company structure generally offers more separation between business and personal assets than a sole trader, where there's no legal distinction between you and the business at all. That protection isn't absolute: personal guarantees and director duties around insolvent trading can still create personal exposure.
Yes, and it's a very common path. Many businesses start as a sole trader for simplicity and transition to a company once income, risk, or growth plans justify it. The switch involves setting up a new entity, transferring contracts and assets, and updating ABN and GST registration, so timing it around your financial year helps.
This article is general information only and doesn't take into account your personal circumstances. It isn't a substitute for advice tailored to your situation. Book a consultation and we'll look at your actual numbers with you.