One of the first big decisions when starting a business is choosing your business structure. The two most common options in Australia are operating as a sole trader or setting up a limited company (Pty Ltd). Each has advantages and disadvantages, depending on your goals, liability concerns, and tax situation.
Let’s break it down.
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Sole Trader: Pros and Cons
A sole trader is the simplest business structure where you operate as an individual. You and your business are legally the same entity.
Pros of Being a Sole Trader
✅ Easy and Affordable to Set Up
- You only need to register for an Australian Business Number (ABN).
- If your income is over $75,000, you must also register for GST.
✅ Full Control
- You make all business decisions without needing approval from shareholders or directors.
✅ Lower Compliance Costs
- Less paperwork and fewer legal obligations compared to a company.
- No need for company financial statements or director reporting.
✅ Tax Simplicity
- Business income is reported on your personal tax return.
- You may be eligible for the small business tax offset.
Cons of Being a Sole Trader
❌ Unlimited Liability
- You are personally responsible for business debts and legal issues.
- If your business is sued, your personal assets (house, car, savings) could be at risk.
❌ Higher Tax Rates as Income Grows
- You pay personal income tax rates, which can be up to 45% if you earn over $180,000.
- Companies have a lower tax rate (25% for small businesses).
❌ Harder to Raise Funds
- Investors and banks may be less willing to lend to a sole trader.
- No ability to sell shares to raise capital.
❌ Less Credibility
- Some clients prefer working with registered companies rather than sole traders.
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Limited Company (Pty Ltd): Pros and Cons
A limited company (proprietary limited, or Pty Ltd) is a separate legal entity from its owners. It is registered with ASIC and must comply with corporate regulations.
Pros of a Limited Company
✅ Limited Liability Protection
- Your personal assets are protected if the company runs into financial trouble.
- You are only liable for the amount invested in the company.
✅ Lower Tax Rate
- Small business companies pay 25% tax, which is lower than the highest individual tax rate.
- Profits can be reinvested in the business without being taxed at personal rates.
✅ Better Access to Funding
- Companies can raise money by issuing shares.
- More attractive to investors and lenders.
✅ Increased Credibility
- Larger clients and corporate partners may prefer dealing with a registered company.
✅ Easier to Sell or Transfer Ownership
- A company can continue operating even if the owner leaves.
Cons of a Limited Company
❌ More Complex and Costly to Set Up
- You must register with ASIC and obtain an Australian Company Number (ACN).
- Annual ASIC fees and company tax returns apply.
❌ More Compliance and Reporting Requirements
- Must prepare financial statements and company tax returns.
- Directors have legal responsibilities under the Corporations Act.
❌ Less Flexibility with Profits
- Money earned belongs to the company, not the owner directly.
- To access profits, you must take a salary or dividends, which can have tax implications.
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Which One is Right for You?
- If you’re starting small, want simplicity, and don’t need investor funding → Sole trader is a good choice.
- If you want limited liability, lower tax rates, and plan to grow or attract investors → Limited company is the better option.
At Easy Accountancy, we help businesses choose the right structure based on their goals, tax situation, and risk factors.
Need advice on setting up your business? Contact us today!
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Why Business Owners Switch to Easy Accountancy
✅ Quick Responses & Personalised Service – No more waiting days for answers!
✅ Expert Support for Small Businesses & Startups – We specialise in helping businesses like yours grow.
✅ Tax Efficiency & Business Advice – We don’t just do the numbers; we help you maximise profits.
✅ Jargon-Free Communication – We explain things clearly, so you always know where you stand.
✅ Seamless Transition – We handle everything, making the switch effortless for you.
How We Make Switching Easy
Many business owners stick with an underwhelming accountant because they assume switching will be difficult. The truth is, it’s quick and hassle-free, and we take care of the entire process.
- Free, No-Obligation Chat
We’ll discuss your business needs and how we can offer a better service.
- We Handle the Transition
We liaise with your current accountant and ensure all financial records are transferred smoothly.
- Review & Optimisation
We review your accounts, identify improvements, and make sure you’re getting the best tax outcomes.
- Ongoing Support & Growth Advice
With us, you’re not just getting an accountant—you’re gaining a trusted business partner.
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If your accountant isn’t meeting your expectations, don’t settle for less. Make the switch today and experience the difference with Easy Accountancy.
📞 Call us now for a free, no-obligation consultation and take the first step towards better financial support!
