Changing your business structure in Australia: from sole trader to company
The time to change structure usually comes later than you think
Many people start as a sole trader because it is simple and low-cost — which is entirely sensible. The problem is that when the time comes to move to a company, many people either do not know when, or put it off because they fear the complexity.
There is no hard rule about the timing, but there are some practical signs that your current structure is starting to no longer fit.
When should you consider moving to a company?
Rising legal risk: If your business deals with large contracts, customers who could sue, or operates in a high-risk field — a sole trader’s unlimited personal liability becomes a genuine concern.
Stable and growing income: When business profit rises past the point where a sole trader’s personal income tax becomes significantly higher than company income tax, moving to a company can save tax. An accountant will run the specific numbers for your situation.
Wanting to bring in shareholders: A sole trader cannot sell shares or take on a formal investment partner. If you want to raise capital or share ownership, a company is required.
Selling the business in the future: A company is easier to sell than a sole trader’s business — a buyer can buy the company’s shares rather than having to transfer each asset and contract.
What you actually have to do during the change
Moving from sole trader to a company is not as simple as “closing the old one, opening the new one”. Here is what needs to be handled:
Register a new company with ASIC: A company is a brand-new legal entity, with its own ACN and its own ABN. The company name can be the same as the old business name — but legally this is a different organisation.
Transfer assets: A sole trader’s assets (equipment, stock, intellectual property) need to be transferred to the company. This can trigger a tax event — CGT (Capital Gains Tax) or GST — depending on the type of asset. An accountant needs to calculate this in advance.
Transfer contracts: Existing contracts signed as a sole trader — including a premises lease, contracts with customers, and contracts with suppliers — do not automatically transfer to the company. You need the other party’s consent to novate (transfer) the contract.
Employees: Technically, a sole trader’s employees are not automatically employees of the new company. The old employment contracts need to be ended and new contracts signed with the company — with consequences for entitlements (leave balances, redundancy). An employment lawyer or Fair Work can advise on how to handle this correctly.
ABN and GST registration: A new ABN for the company, and a new GST registration if needed. The sole trader’s old ABN will be cancelled.
Bank account: Open a separate account for the company — you cannot share a personal account.
Business name: A business name registered to the sole trader needs to be re-registered to the company.
Cost and time
Changing structure is not cheap and takes a considerable amount of time — accountant fees, solicitor fees, ASIC fees, and the cost of the time it takes to handle. This is why it is worth investing in the right structure from the start rather than changing it later.
That said, if the business has grown enough, the cost of changing is usually much smaller than the long-term legal and tax benefits.
Don’t do it alone
Changing structure is the moment when you need both an accountant and a solicitor at the table together — the accountant handles tax and finances, the solicitor handles the legal side of contracts and assets. Working through it step by step without professional advice is a sure way to miss something important.