The best time for a sole trader to consider becoming a company is when the business has outgrown its current structure.
But there’s no magic profit figure or single milestone that decides sole trader vs company for everyone. Higher profits might prompt you to compare the tax differences. Growing risks, new employees, investors, or plans to sell could also make incorporation worth considering.
The question is: which of these signs apply to your business?
We’ll walk through the main ones, drawing on our experience at Australian Business Magazine covering Australian businesses.
First up, the trigger that’s easiest to measure: your profit.
Your Profit Has Pushed Past the Income Tax Crossover Point
As your profits grow, the tax bill grows with them. Once you reach the higher tax brackets, it’s worth comparing what you pay as a sole trader with the tax a company pays. Let’s start with the rates that create this difference.
Sole Trader Rates vs the Company Tax Rate
As a sole trader, you pay tax on your business profit through your personal tax return. The rate increases as your taxable income moves into higher brackets. Once your income passes $45,000, the portion up to $135,000 is taxed at 30%, plus the 2% Medicare levy (a public healthcare levy).
A company is taxed differently, however. If it qualifies as a base rate entity, it generally pays 25% tax on its taxable income. It doesn’t use the same individual tax brackets, and the Medicare levy doesn’t apply to the company itself.
On paper, that creates a 5 percentage-point difference. But you don’t necessarily keep the full 5%. When you take profits out as dividends, you may have additional personal tax to pay. Franking credits can reduce that tax by giving you credit for the tax the company has already paid.
If the difference still seems unclear, the example below compares the numbers at a specific profit level.
A Worked Example at $120,000 Profit
Say your business makes $120,000 in taxable profit for the year. As a sole trader, tax on that profit works out to roughly $28,920 once you include the Medicare levy. A company that qualifies as a base rate entity would pay 25% on the same $120,000, or $30,000.
So at this profit level, the sole trader structure actually comes out slightly ahead, and the real crossover sits a little higher than $120,000.
The company’s advantage becomes clearer if you leave some profits in the business rather than draw them all out. Retained profits stay taxed at the company rate instead of being added to your personal taxable income and potentially taxed at a higher rate.
You’re Taking on Legal Liabilities Your Personal Assets Can’t Afford
Imagine a client sues after a job goes wrong, or a supplier demands payment you can’t afford. If you operate as a sole trader, those debts can reach beyond the business and into your personal finances.
That’s because there’s no separate legal entity between you and the business. You’re personally responsible for its business debts, which can put personal assets such as your savings, car, or home at risk.
But a company usually creates a separate legal entity, so the business can take on debts and legal claims in its own name. This gives your personal assets a layer of protection that a sole trader structure doesn’t provide.
That protection isn’t automatic, though. Directors who sign personal guarantees for loans, leases, or other obligations can still be personally liable.
You Need a Partner or Outside Money to Grow
You might be wondering when you actually need a partner or outside money to grow your business. Let’s look at a real-life example.
North Point Power & Data in Cairns started as a sole trader business in 2016. The following year, founder Christian Savvakis partnered with Wayne Goggin, and the business became North Point Power & Data Pty Ltd.
If Christian had continued running the business alone, expanding it could have been harder without another person’s skills, time, or capital. By bringing in a partner, he had another owner to help take the business forward.
You might face a similar situation when your own resources start limiting how far you can grow. A partner could bring expertise you don’t have, more money to invest, or both.
So if you can’t fund or run the next stage alone, a company can make it easier to bring in another owner or investor.
You Want to Sell the Business or Bring in Investors Later
What if you don’t plan to run the business forever? You might eventually want to bring in an investor or sell the business to someone else. Your business structure can affect how you do that.
With a company, ownership is represented by shares. You can issue new shares to an investor or transfer existing shares to a buyer (subject to the relevant rules).
A sole trader business doesn’t have that share structure. If you sell it, you generally need to transfer the business assets and other parts of the business to the new owner. That can include licences, leases, and business relationships.
This is why it’s worth thinking about your business structure early if you plan to bring in investors or sell the business later.
When Staying a Sole Trader Still Makes Sense
Even if your business hits one of the triggers above, becoming a company isn’t automatically the right move. Staying a sole trader may still suit you when:
- Your Profits Are Still Relatively Modest: If your taxable income is still low enough that incorporating wouldn’t reduce your tax bill, there’s little reason to switch yet. The extra costs and administration of running a company can outweigh the potential savings.
- Your Business Has Little Financial or Legal Risk: Working alone, handling few contracts, and carrying little stock usually means less financial or legal exposure. In that situation, you have less need for the liability protection a company provides.
- You Don’t Need Another Owner: If you’re happy running the business yourself and don’t need outside capital or expertise, there’s no need to create a share structure yet.
- You Don’t Expect to Sell Soon: Switching to a company just to prepare for a future sale rarely makes sense if you’re not planning to sell anytime soon. Unless you have another reason to incorporate, your sole trader structure still works for now.
You don’t have to make the decision permanent, either. You can stay a sole trader while the structure suits your business, then incorporate later when your profits, risks, or growth plans change.
The Trade-Off: What a Company Structure Actually Costs You
First, you’ll need to register the company with the Australian Securities and Investments Commission (ASIC). This costs $636 as of July 2026. You’ll also need an Australian company number (ACN) and, if you’re a director, a director identification number (director ID).
The costs don’t stop after registration. You’ll pay ASIC an annual review fee of $342 to keep the company registered.
You’ll also usually pay more for accounting and tax work. A company lodges its own tax return separately from your personal return, so your accountant may charge more than they would for a sole trader return.
Then there are the extra responsibilities that come with being a company director. You need to keep proper financial records and meet your obligations under the Corporations Act. If you have employees, that also includes meeting your superannuation obligations.
Making the Switch When You’re Ready
By now, you should have a clearer idea of which signals apply to your business. Use them to work out whether staying a sole trader still fits, or whether it’s time to consider a company.
If you’re still not sure, talk to an accountant before you make the switch. They can look at your numbers and circumstances and help you work out whether incorporating makes sense for you.
