Growing your business is exciting — but at some point, your structure can start holding you back. Here’s what you need to know about making the move from sole trader to company, and how to do it properly.
A sole trader structure is simple and low-cost to run, but it comes with real limits. As your business scales, a company structure can offer meaningful advantages — from tax savings to personal asset protection. The key is knowing when to make the move, and doing it correctly.
Is it time to make the switch?
Not every business needs to be a company, and switching too early adds cost and complexity without much benefit. But there are clear signals that the time is right.
| Tax rate — company | Tax rate — sole trader | Personal liability | Company liability |
|---|---|---|---|
| 25% flat rate (turnover under $25M) | Up to 47% marginal income tax rates apply | Unlimited — personal assets exposed | Limited — personal assets protected |
The most common triggers include outgrowing your current structure as revenue rises, taking on larger contracts with greater liability risk, and wanting more flexibility for tax planning and future growth.
As a sole trader, you are personally liable for all business debts — including tax debts — and that exposure extends to personal assets like your home. A proprietary limited (Pty Ltd) company is a separate legal entity, meaning the business’s debts belong to the company, not you personally.
Are you turning down work, taking on risk that keeps you up at night, or paying more tax than you should? If yes to any of these, it may be time to talk to an adviser about restructuring.
1 | Register your company and new ABN
You cannot transfer your existing sole trader ABN to a new company — the company is a separate legal entity and needs its own registrations. You’ll register through the Australian Government’s Business Registration Service, which lets you apply in one place for your company name, Australian Company Number (ACN), and new ABN.
Cancelling your sole trader ABN will also cancel any associated GST, luxury car tax, wine equalisation tax, and fuel tax credit registrations — so make sure all lodgements, reports, and payments are finalised first. The new company entity then needs to register for all required obligations afresh, including income tax, GST, and PAYG.
If your business name is currently registered under your sole trader ABN, you’ll need to transfer it to the new company ABN to maintain your brand identity.
2 | Appoint directors and get a director ID
Every company needs at least one director. You can be both the sole shareholder and director. Before being appointed, any new director must apply for a Director ID — a unique identifier you keep for life — using their myGovID account. Only the individual themselves can apply; an adviser can help determine if it’s required but cannot apply on their behalf.
Even if you’re the only shareholder, consider drafting a basic shareholder agreement from the outset. It’s easy to overlook when you’re flying solo, but invaluable if you bring in investors or partners later.
3 | Transfer assets — carefully
Any business assets — equipment, vehicles, intellectual property, trademarks — need to be formally transferred from your sole trader entity to the new company. This sounds straightforward, but it carries real tax and legal implications that are easy to get wrong.
Transferring assets may trigger capital gains tax, GST, and potentially stamp duty depending on the asset type and state. Rollover relief may be available in some cases, which can defer a CGT liability — but it needs to be structured correctly. Always seek professional tax advice before transferring assets.
Don’t overlook intangible assets. Business names, domain names, phone numbers, email addresses, trademarks, and patents are frequently missed during a restructure — but they can carry significant value and should be formally transferred or licensed to the new company.
If assets are sold to the company, an independent valuation is recommended to establish proper consideration. If sold on credit, document the transaction carefully and consider registering a security interest on the PPSR (Personal Property Securities Register).
4 | Open a company bank account
Your company must operate through its own bank account — you cannot simply continue using your personal or existing sole trader account. Some banks allow you to convert an existing account, but this can cause you to lose historical transaction records, which may complicate tax reporting. Check with your banker first.
A dedicated company bank account keeps personal and business finances clearly separated, simplifies tax reporting, and improves cash flow visibility. All business-related funds must be transferred from your personal account to the company account once it is set up.
5 | Deal with debtors, creditors and suppliers
This is one of the most commonly mishandled parts of a restructure — and one of the most consequential. Getting it wrong can expose you to personal liability long after you thought you had left your sole trader days behind.
- Collect all outstanding debts through the old sole trader entity — resist the temptation to collect them in the new company.
- Open new supplier accounts in the company’s name. Do not allow old accounts to keep accruing debt under the sole trader entity.
- When opening new supplier accounts, read any director’s guarantee clauses carefully before signing.
- Transfer or assign your business lease to the new company, or negotiate a new lease.
- Transfer utility accounts — phone lines in particular may hold intangible value worth preserving.
Insolvency practitioners regularly see cases where a company failed to open new supplier accounts. When the company later entered administration, creditors under the old sole trader accounts were able to make claims directly against the individual. Not doing this step correctly can be a very costly mistake.
6 | Transfer employees to the new entity
If you have employees, they cannot simply carry across — they must be formally terminated from the sole trader entity and re-engaged under the new company with new employment agreements and tax declaration forms. Any accrued entitlements such as annual and long service leave transfer across to the new entity.
A new Workcover policy must also be taken out under the company name. Failure to correctly report wages to Workcover can result in significant penalties. Speak to your insurance broker about all policies — public liability, professional indemnity, and business insurance may all need to be rewritten under the new entity.
Some insurance policies require a full reapplication under the new structure rather than a simple update. Don’t assume your existing cover rolls over — confirm with your broker before the transition date.
7 | Understand your ongoing compliance obligations
Operating as a company comes with more ongoing obligations than a sole trader structure. It is not a set-and-forget change. These include:
- Filing annual returns and paying your ASIC registration fee on time
- Lodging company financial reports each year
- Maintaining accurate records of financial transactions and company decisions
- Updating company details with ASIC after any changes
- Meeting all ATO reporting obligations including company tax, GST, and PAYG withholding
Work with an accountant during the transition year to optimise your deductions and ensure you don’t miss lodgement obligations across both the old and new entities while winding one down and setting the other up.