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As your business grows, you may be thinking about changing your business structure in 2025. For example, you might want to move from being a sole trader to operating under a company structure. Making this transition can help you better manage risk, secure investment, and streamline your operations as market conditions evolve.
Changing business structures will significantly impact the way your business operates. When done right, however, it can bring many long-term benefits, including greater asset protection and opportunities for growth. It’s always a good idea to plan ahead and ensure your legal documentation is up-to-date as regulations and best practices change over time.
We often talk about business structures as being akin to the foundational frame of a house. Each structure comes with different reporting requirements and regulatory obligations, so it’s important that you understand what applies to your business type. You can read more about the importance of choosing the right business structure here.
Why Would I Need To Change My Business Structure?
Often, one of the first changes a growing business makes is its business structure. This is especially true for sole traders who are looking to take on a partner or register as a company in today’s competitive environment. The decision can pave the way for improved legal protection and more sophisticated financial management.
However, business growth is not the only reason to change your structure. Other common motivations include:
- Changes in ownership: If you acquire an existing business or welcome new investors, you may need to modify your business structure to align with your strategic goals.
- Changes to your business strategy: Whether you’ve altered your product range, revised your service offerings, or are looking to expand into overseas markets, a different structure might better support your vision. For more on adapting to new market conditions, check out our industry regulations guide.
- Financial or operational concerns: Restructuring the business can improve cash flow, profitability, and overall operational efficiency. Our insights on registering a company may help you understand the benefits.
Ultimately, choosing your new business structure will depend on what your business needs now and where you see it in 2025. Some common business structure changes are explained below.
Changing From A Sole Trader To A Company Structure
If your business has outgrown a sole trader setup, you may be considering setting up a company. In doing so, you create a legal entity separate from yourself, which not only limits your personal liability but also opens up opportunities for external investment and growth.
Your tax and reporting obligations will change accordingly, so it is important to understand these differences before making the move. We have summarised some key differences between sole trader and company structures below.
Record Keeping
Sole trader
- No separate tax return is required for your business – business income and expenses are recorded in your individual tax return using a Business and Professional Items Schedule.
- Financial records, including tax returns, must be retained for at least 5 years.
Company
- A company must lodge its own tax return.
- Tax returns must be retained for at least 5 years.
- Financial records must be kept for at least 7 years under the Corporations Act 2001 (Cth).
- Companies are subject to annual review by the Australian Securities and Investments Commission (ASIC).
Your financial records will need to:
- Record and explain transactions, financial position, and performance.
- Ensure that true and fair financial statements can be prepared and audited.
You will also need records that demonstrate compliance with other legal obligations, such as maintaining:
- A registered officer;
- A principal place of business;
- Regular company meetings;
- A written record of meetings and resolutions.
Business Income
Sole trader
Money earned through your sole trader business is treated as your personal income by the Australian Taxation Office (ATO). As a sole trader, you are responsible for any tax obligations and may claim deductions for business expenses. You can freely withdraw funds from your business bank account, which are then taxed as part of your individual income.
Company
For companies, it is mandatory to have a separate business bank account. Since the company is a distinct legal entity, funds remain within the business. Earnings can only be accessed as wages or dividends, and any payments made to you are reflected on your individual tax return. In addition, eligible companies (base rate entities) may benefit from a lower corporate tax rate of 25% in 2025 compared to the standard rate of 30% for other companies. More details are available on the ATO website.
Liability
Sole trader
As a sole trader, you are personally liable for any financial or tax debts incurred by your business. There is no legal distinction between your personal and business assets, so your personal property can be used to settle business debts.
Company
A company is generally responsible for its own debts, which means your personal assets are typically protected. However, as a director, you could still face personal liability if statutory or director’s duties are breached, so it is important to adhere strictly to legal requirements.
Tax-Free Threshold
Sole trader
The tax-free threshold that applies to individuals also applies to sole traders, meaning you only pay tax on income exceeding this threshold.
Company
Companies do not benefit from a tax-free threshold; every dollar earned by the company is subject to tax.
Tax Rates
Sole trader
Sole traders are subject to individual income tax rates, which are progressive based on your total taxable income.
Company
For companies, the standard corporate tax rate remains at 30% for non-base rate entities, while eligible base rate entities in 2025 benefit from a reduced rate of 25%. This distinction can have significant implications for net profitability.
Changing From A Sole Trader To A Partnership Structure
If you decide to transition from a sole trader to a partnership, you will need to apply for a new Australian Business Number (ABN) as the sole trader ABN cannot simply be transferred. This is particularly common in 2025 as small businesses continue to explore collaborative models to expand their expertise and share the financial risks.
You should also consider establishing a Partnership Agreement that outlines decision-making processes, dispute resolution mechanisms, and the procedures if a partner decides to leave. This document is critical to maintaining clear expectations and protecting all parties involved.
Legislation governing partnerships varies by State and Territory, so ensure you are compliant with the specific laws that apply to your circumstances. For additional guidance on registration requirements and legal documentation, you might also like our business registration guide.
Changing From A Partnership To A Company Structure
If you wish to change from a partnership to a company structure, you will need to formally dissolve the partnership before setting up the company. This is because the transition must be legal rather than merely a change of name or operation.
You can dissolve a partnership through a Partnership Dissolution Agreement. Once dissolved, you can proceed with the company registration process, ensuring all existing contracts and obligations are properly transferred.
Key Issues To Consider When Changing Business Structures
Your ABN
In most cases, you will need to cancel your current ABN and register a new one under your new business structure. For example, if you are a sole trader transitioning to a company structure, your sole trader ABN must be cancelled, and a new ABN issued for the company.
If you are changing to a company structure, you will need to register your company through the Business Registration Service. This convenient service allows you to apply for your new ABN, Australian Company Number (ACN), company name, and business name all at once.
Your Business Name
When changing your business structure, you will need to transfer your business name with ASIC. This process ensures that your trading name is correctly linked to your new ABN.
A business name transfer is a two-step process involving:
- Transferring your existing business name; and
- Registering the business name using your new ABN.
You can find out more about the process on the ASIC website.
Your Trademarks And Other Intellectual Property
If your business has any registered trademarks or logos, it is essential to transfer ownership to the new entity. Without this step, your new business may not legally own the intellectual property that helps define your brand. For expert advice on transferring intellectual property, see our Trademark Initial Consultation page.
To transfer a trademark, you will need to submit a form to IP Australia.
What’s Next?
So you’ve successfully changed your business structure – congratulations, you’ve done the hard work! As you move forward in 2025, remember that the legal landscape and business regulations continue to evolve. Keeping your documentation and processes current is key. For further insights, our Business Partners Guide provides additional strategies on maintaining compliance.
It is also important to ensure that your digital presence reflects your new structure. Update your website Terms and Conditions and Privacy Policy to align with the new legal entity, so your clients and suppliers are fully informed.
- Documentation: Update your business documents, such as letterheads and invoices, to include your company details, ACN or new ABN, updated contact information, and new bank account details.
- Contracts: Amend or re-enter contracts with employees, clients, suppliers, or third parties so that these agreements reflect the new business structure. You may also want to update your business terms and conditions accordingly.
- Insurance: Notify your insurance providers of the change to ensure that your coverage adapts to your new company status.
Need Help?
Changing your business structure can be complex-it’s a big decision and one that you want to get right. Whether you’re moving from a sole trader to a company, establishing a partnership, or transitioning from a partnership to a company, having the right legal support is essential.
If you’d like to talk through your options or are unsure about the steps involved, we’re here to help. Get in touch with our team at team@sprintlaw.com.au or call us on 1800 730 617 for a free, no-obligations consultation.
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