Company vs Sole Trader in Australia (2026): Which Is Right for You?
Choosing between a sole trader and a company is the first big decision most Australian founders face — and it shapes your tax, your personal risk, your admin and how much you pay to get started. Here’s the plain-English breakdown so you can pick the right structure in 2026.
The short answer
If you’re testing an idea, earning modest income and want the cheapest, simplest setup, a sole trader structure is usually the place to start. If you want to protect your personal assets, you’re making solid profits you’d like taxed at a flat 25%, or clients and suppliers expect to deal with a “Pty Ltd”, a company is the better long-term home. Plenty of Australians start as a sole trader and switch to a company as they grow — and you can too.
What is a sole trader?
A sole trader is the simplest structure: you are the business. You trade under your own Tax File Number (TFN), register a free ABN, and report business income in your personal tax return.
- Cheap and fast — an ABN is free from the Australian Business Register.
- Full control — you make every decision.
- Taxed at personal marginal rates — from 0% up to 45% (plus the 2% Medicare levy), with the $18,200 tax-free threshold.
- Unlimited personal liability — there’s no legal line between you and the business, so your home, car and savings are exposed if the business is sued or can’t pay a debt.
What is a company (Pty Ltd)?
A proprietary limited company (“Pty Ltd”) is a separate legal entity, registered with ASIC and given its own Australian Company Number (ACN). The company — not you personally — owns the assets, earns the income and carries the liabilities.
- Limited liability — your exposure is generally limited to what you’ve put in (your shares), protecting your personal assets.
- Flat company tax rate — 25% for a “base rate entity” (aggregated turnover under $50 million and 80% or less passive income), otherwise 30%.
- Its own identity — the company keeps trading if ownership changes, and a registered ACN adds credibility.
- More admin — an annual ASIC review, keeping details current, director duties and a separate company tax return.
Company vs sole trader: side by side
| Sole trader | Company (Pty Ltd) | |
|---|---|---|
| Legal status | You are the business | Separate legal entity (ACN) |
| Personal liability | Unlimited | Limited to your shares* |
| Tax rate | Personal marginal (0–45% + Medicare) | Flat 25% or 30% |
| Setup cost | Free (ABN only) | From $60 + $636 ASIC fee |
| Ongoing cost | Minimal | $342/yr ASIC review + accounting |
| Admin | Low | Moderate (ASIC, records, duties) |
| Credibility | Good | Higher — “Pty Ltd” brand |
| Bring in partners/investors | Hard | Easy (issue shares) |
*Directors can still be personally liable in some cases — personal guarantees, breaches of director duties, or trading while insolvent.
Tax: where a company can save you money
As a sole trader, every dollar of profit is taxed at your personal marginal rate, which climbs to 45% (plus Medicare) on higher incomes. A company pays a flat 25% (base rate entity) on its profits — so if your business earns more than you need to live on and you can leave profits in the company to reinvest, the company rate can be far lower than your top personal rate.
The catch: money you take out of the company (as a wage or dividend) is still taxed in your own hands. Australia’s franking (imputation) system means you get a credit for the 25% the company already paid, so profits generally aren’t taxed twice — but if you draw out every dollar at a high marginal rate, the headline saving shrinks. The real benefit shows up when you retain and reinvest earnings, split income appropriately, or plan for the long term. Always confirm your numbers with an accountant.
Liability: your personal risk
This is often the deciding factor. As a sole trader you’re personally on the hook for every business debt and claim. In a company, liability is generally contained within the company, shielding your personal assets. That protection isn’t absolute — you can still be liable if you give a personal guarantee (common on leases and loans), breach your duties as a director, or let the company trade while insolvent — but for most trading businesses, a company meaningfully lowers personal risk.
Setup and running costs
A sole trader setup is essentially free — you just register an ABN. A company costs more: ASIC charges $636 to register a company from 1 July 2026, and there’s an annual review fee of $342 each year thereafter, plus accounting for the separate company return. The good news is you don’t have to pay a lawyer thousands to set one up — Cheap Company Setup registers your company for a flat $60 service fee (plus the $636 ASIC fee), with every document included.
Credibility, clients and raising money
A “Pty Ltd” after your name signals permanence and professionalism. Some larger clients, government tenders and suppliers will only deal with companies. And if you ever want to bring in a business partner or investor, a company makes it simple — you just issue shares. A sole trader can’t do that.
When should you switch to a company?
- Your profits are consistently high and you’d benefit from the 25% rate and retaining earnings.
- You want to protect personal assets as risk grows.
- Clients or contracts require a company.
- You’re bringing in a partner or investor.
- You want to protect your brand and trade under a company name.
Frequently asked questions
Can I change from sole trader to company later?
Yes. Many businesses start as a sole trader and incorporate as they grow. You register a new company, move your business into it, and update your ABN, contracts and bank accounts.
Does a company need an ABN too?
Yes. A company gets an ACN when it’s registered with ASIC, and it also needs its own ABN to trade and deal with the ATO. See our guide on registering for an ABN.
Is a company always cheaper on tax?
No. If your income is modest, a sole trader can pay less tax overall thanks to the tax-free threshold and lower marginal rates. The company advantage grows with higher, reinvested profits.
How do I actually register a company?
Most companies with a standard name are registered online the same day. Follow our step-by-step guide to registering a company in Australia, or start your registration now for $60.
Decided a company is right for you?
You can register a Pty Ltd company in Australia for a flat $60 service fee plus the $636 ASIC fee. Constitution, ACN certificate and all registration documents are included — usually registered the same day.
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