At Pursue Wealth Accounting, we help business owners navigate this transition smoothly. In this guide, we’ll explore the key benefits of incorporating, setting up a trust, and how these structures can provide both financial and legal advantages.
Why Transition from a Sole Trader to a More Complex Business Structure?
Operating as a sole trader is often the simplest and most cost-effective way to start a business. However, as revenue and liability risks increase, so do the disadvantages of remaining a sole trader:
• Unlimited Personal Liability: Your personal assets may be at risk in case of legal action.
• Higher Tax Rates: As your income grows, you may pay more tax at individual marginal rates.
• Limited Growth Potential: Scaling a business and attracting investment can be difficult.
• Minimal Asset Protection: Business and personal assets are not separated.
Transitioning to a company or trust structure can help mitigate these risks while providing financial advantages.
Establishing a Company: Advantages & Considerations
- Benefits of Incorporating a Company
A Proprietary Limited (Pty Ltd) company is a popular choice for business owners transitioning from a sole trader. Benefits include:
• Limited Liability: Your personal assets are generally protected from business debts.
• Lower Tax Rates: Companies in Australia have a flat tax rate (25% for small businesses), often lower than individual tax rates.
• Improved Business Credibility: Clients and investors may view a company as more professional and trustworthy.
• Greater Flexibility for Ownership & Investment: Shares can be issued to investors or partners. - Steps to Register a Company in Australia
• Choose a company name and ensure it’s available.
• Register your company with ASIC (Australian Securities and Investments Commission).
• Obtain an Australian Business Number (ABN) and Tax File Number (TFN).
• Set up a company bank account.
• Ensure compliance with GST, PAYG withholding, and superannuation obligations. - Key Compliance Obligations for Companies
Operating a company requires additional compliance, such as:
• Lodging annual company tax returns.
• Maintaining financial records and director’s obligations.
• Paying employees’ superannuation and payroll tax (if applicable).
Setting Up a Family Trust for Asset Protection & Estate Planning
A family trust (discretionary trust) is a powerful tool for protecting assets, distributing income tax-effectively, and ensuring smooth estate planning.
- Benefits of a Family Trust
• Asset Protection: Shields assets from business risks, creditors, and legal disputes.
• Tax Efficiency: Distributes income among family members in lower tax brackets.
• Estate Planning Advantages: Provides structured wealth transfer to future generations.
• Capital Gains Tax (CGT) Benefits: May reduce CGT liability through discounting and strategic distribution. - How to Establish a Family Trust
• Draft a Trust Deed outlining the terms and beneficiaries.
• Appoint a Trustee (corporate or individual) to manage the trust.
• Apply for an ABN and TFN for the trust.
• Open a separate bank account for the trust’s financial activities. - Is a Trust Right for Your Business?
A family trust is ideal for business owners who:
• Want to protect family wealth from creditors or litigation.
• Have multiple income streams and wish to distribute profits tax-efficiently.
• Plan to pass assets to beneficiaries while minimising estate taxes.
Choosing the Right Business Structure: Company vs Trust
| Feature | Sole Trader | Company | Family Trust |
| Liability Protection | No | Yes | Yes |
| Tax Rate | Individual Marginal Rate | 25% (small business) | Dependent on distribution |
| Compliance Burden | Low | Medium | Medium to High |
| Asset Protection | No | Yes | Strong |
| Income Distribution | No | No | Yes |
| Ideal For | Small business owners | Growing businesses, startups | Asset protection & estate planning |
How Pursue Wealth Accounting Can Help
Transitioning from a sole trader to a more complex structure requires careful planning and expert advice. At Pursue Wealth Accounting, we offer tailored solutions to help business owners:
✅ Assess the best structure based on tax efficiency, liability protection, and business goals.
✅ Register & set up companies or trusts, ensuring compliance with ASIC and ATO regulations.
✅ Implement asset protection strategies to safeguard business and personal wealth.
✅ Optimise tax planning to reduce liabilities and maximise profits.
Conclusion
Upgrading from a sole trader to a company or family trust offers long-term benefits, including asset protection, tax savings, and legal safeguards. However, the transition requires careful structuring to ensure compliance and financial efficiency.
At Pursue Wealth Accounting, we specialise in business structuring and tax planning, helping you secure your financial future while growing your business. Contact us today for a consultation and take the next step towards a more secure and profitable business structure.
