The structure you choose on day one shapes your tax bill, your personal risk and your paperwork for years. Changing later is possible but rarely free — so it is worth getting right early. Here is the plain-English version of the four common options.
Sole trader
You and the business are legally the same person. Setup is nearly free (just an ABN), reporting is simple, and losses can sometimes offset your other income.
- Upside: cheapest to run, full control, simplest tax return.
- Downside: unlimited personal liability — business debts are your debts — and all profit is taxed at your personal marginal rate.
Company (Pty Ltd)
A separate legal entity registered with ASIC. The company earns the profit, pays company tax, and you take money out as salary, dividends or both.
- Upside: limited liability, a flat company tax rate, easier to bring in investors or sell.
- Downside: setup and annual ASIC fees, more bookkeeping, and strict rules (Division 7A) about taking money out informally.
Partnership
Two or more people (or entities) in business together, sharing income and losses. Cheap to establish, but each partner can be personally liable for the whole partnership's debts — choose partners carefully.
Discretionary (family) trust
A trustee holds the business or investments for the benefit of family members. Each year the trustee can decide how to distribute profit among beneficiaries.
- Upside: flexibility to distribute income within the family, asset protection, access to capital gains concessions.
- Downside: setup and ongoing accounting costs, losses are trapped inside the trust, and rules around distributions have tightened — this is not a do-it-yourself structure.
The questions that actually decide it
- How much profit do you realistically expect in the next 2–3 years?
- Could the business be sued, or take on significant debt?
- Do you have a spouse or family members in lower tax brackets?
- Will you ever take on partners or investors, or sell the business?
- How much admin are you prepared to pay for each year?
Bring honest answers to those five questions and a structuring conversation takes one meeting.