When Should I move from a Sole Trader to a Company?

When Should I move from a Sole Trader to a Company?

A common question that comes into every sole trader’s mind, especially owners of small businesses, is ‘when they can take a step forward and form a company.’ This decision is an important one and needs to be done when the business is at the right stage. There are certain factors that you need to consider before you move towards this step. Here we would be highlighting some facts that would help you decide whether you are ready to form a company.

First, understand the difference between a sole trader and a company. Being a sole trader means there is a little distinction between you and your business. The business debts become your personal debts, and all your assets usually remain unsafe. A company is a legal entity where your liability is limited. There are also different tax rates that apply to a sole trader as compared to a company, and there are also different costs when operating as a company. We would be focusing on these facts in detail.


There is an assumption that by forming a company, tax payments would decrease as compared to the payments as a sole owner. This is assumed for the reason that the current tax rate for a small business is 28.5% and a sole trader can pay individual marginal tax rates as high as 49%. When working as a sole operator, there is a possibility that the income will be known as personal services income for which the Australian Tax Office will want to check your business’ profits being given to you as a wage. This shows that the net revenue is not different from the revenue you earned being a sole proprietor, more or less.

Most of the tax allowances that are available to a company are also available to sole proprietor as well. However, there are a few benefits like the travel allowance which one can’t do for himself being a sole owner.


Being a sole trader if you have growth plans then you would have to form a company to expand your business and take it to a greater level. As getting in more investments for your business is difficult when you don’t have a secure company structure. Moreover, a separate business entity concept is safer and less risky to operate.


There are certain legal requirements for a company, and they also provide some level of legal protection, which works as a barrier between you and the third parties. This can be necessary when you have employees, supplier or client issues, etc.

Starting up your company to run your business is the key step towards a successful business. What is most important is to analyse your situation to ensure when you are ready and that you’re doing it for the right reasons and at the right time.

Want to know if you’ve got the best structure for your business? We can assist with business structure, asset protection and other tax effective strategies for your business. Give us a call on 07 3510 1500 to setup an appointment today.

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Agilis Chartered Accountants

Agilis Chartered Accountants provides tailored accounting services, offering clients a high level of personalised advice and support - from individual tax to business consultancy. With a commitment to driving success, we provide comprehensive accounting and advice solutions that ensure every stage of your journey is met with the utmost efficiency. From startup through expansion and growth, our services make it easier for you to achieve business objectives – ultimately leading towards greater financial stability.