Sole Trader To Company Restructure Checklist

Yes, you can change from a sole trader to a company in Australia. But it isn't as simple as ticking a box or editing your ABN details.

A company is a separate legal entity, which means your business assets, contracts, staff arrangements, registrations and customer-facing documents often need to move from you personally to the new company. That handover is where a lot of growing businesses get caught out.

The good news is that a sole trader to company restructure can be very manageable if you treat it like a practical transfer project. You aren't starting from scratch, but you do need to make sure the right things are moved, updated and documented.

Can You Change From Sole Trader To Company?

Yes, you can change from a sole trader to a company, but the company will need its own legal setup and registrations.

As a sole trader, you and your business are legally the same person. Your ABN, contracts, bank account, insurance and liabilities usually sit with you personally.

When you set up a company, the company becomes a separate legal person. If it's registered as a proprietary limited company, it will usually have Pty Ltd at the end of its name and will be governed by the Corporations Act 2001. ASIC will issue the company an ACN, and the company can then apply for its own ABN.

That separate identity is the main reason the restructure has a few moving parts. Your sole trader ABN doesn't simply become the company ABN. Your existing contracts don't always automatically follow you. Your business name may need to be transferred. Your employees may technically be moving to a new employer.

For example, say Mike runs a cleaning business as a sole trader in Newcastle. He turns over $180,000 a year, is registered for GST, has two employees, owns cleaning equipment worth about $12,000 and services three commercial clients on written contracts. If Mike sets up Mike's Cleaning Pty Ltd, the company needs its own ABN and GST registration. The client contracts and equipment also need to be transferred to the company, and the employees need new employment paperwork.

That's why the restructure isn't just an ASIC task. It's a legal, operational and customer handover.

How Do You Set Up The New Company And Registrations?

You set up the new company by registering it with ASIC, then applying for the company registrations your business needs.

The usual starting point is choosing the company name, directors, shareholders and share structure. ASIC then registers the company and issues an Australian Company Number, commonly called an ACN.

From there, your company will usually need:

• ABN: A company needs its own Australian Business Number. Your sole trader ABN can't be transferred to the company.
• TFN: The company can apply for its own tax file number. Your accountant can guide you on the tax side.
• GST registration: If the company expects GST turnover of $75,000 or more, it generally needs to register for GST.
• PAYG withholding: If the company will pay employees, it will usually need PAYG withholding registration.
• Business bank account: The company should use its own bank account, not your personal or sole trader account.
• Insurance: Policies should be reviewed and reissued or updated for the company where needed.

Once the company is ready to trade, you may need to update or cancel the sole trader registrations that are no longer needed. This can include your sole trader GST registration, PAYG withholding registration and business name connections.

Be careful with timing. If you invoice through the company before its ABN, GST status, trading terms or bank account are ready, your records can become messy very quickly. It often works best to pick a clear changeover date, such as the first day of a new month or quarter.

You should also speak with your accountant about tax, GST and duty consequences before transferring assets. Those issues can be significant, especially if the business has stock, vehicles, valuable equipment or goodwill.

How Do You Transfer Your Business Name, Contracts And Customers?

You transfer your business name through ASIC, but contracts and customer relationships usually need separate written steps.

If you have a registered business name attached to your sole trader ABN, you can request a transfer through ASIC Connect. ASIC issues a transfer number, which is valid for 4 months and 28 days from the date of the transfer application. The company can then use that transfer number to register the business name to its own ABN.

A business name isn't the same as a company name. Your company might be called Blue River Holdings Pty Ltd, while the business name your customers see is Blue River Plumbing. Both need to be handled properly.

Contracts With Customers And Suppliers

Your existing contracts may say whether you can assign or transfer them. Some contracts let you assign rights with notice. Others require written consent. Some need a novation, which is where all parties agree that the company replaces you as the contracting party.

Check contracts such as:

• customer service agreements
• supplier agreements
• software subscriptions and SaaS accounts
• equipment hire agreements
• loan, finance or merchant facility documents
• marketplace, distributor or reseller agreements

If you skip this step, you may find the company is doing the work but you personally remain liable under the old contract. You may also struggle to enforce payment if the customer says they never agreed to deal with the company.

Customer Notices

Customers don't always need a long legal letter, but they do need clear information. Your notice might say:

• the date your company will start trading
• the company name, ABN and contact details
• whether bank details or payment terms are changing
• that existing services will continue under the updated entity
• who to contact with questions

If you deal with consumers or small business customers, make sure your updated terms also comply with the Australian Consumer Law, including consumer guarantees and unfair contract terms rules.

What Happens To Your Employees When You Restructure?

Your employees usually need to be moved to the company with new employment documents and the correct Fair Work treatment.

If you employ staff as a sole trader, the current employer is you personally. After the restructure, the employer should be the company. That means you need to be careful with contracts, payroll, superannuation, leave balances and service.

Under the Fair Work Act 2009, a transfer of business can happen where an employee moves to the new employer within 3 months and performs substantially the same work, with a connection between the old and new business. A restructure from sole trader to company can often fall within this framework, especially if the same business, clients, assets or work continue.

In practice, you should work through:

• New employment contracts: The company should issue new contracts naming the company as employer.
• Modern awards and classification: Check the correct award, classification, rates, penalties and allowances still apply.
• Leave balances: Work out what transfers, what is paid out and what records need updating.
• Service and redundancy: Get advice before trying to reset service periods, as the Fair Work rules can be technical.
• Payroll and super: Update payroll software, Single Touch Payroll settings and superannuation clearing house details.
• Policies: Update workplace policies so they name the company and match how the business now operates.

Say Mike's cleaning business has two part-time employees who keep doing the same cleaning shifts for the same clients after 1 July. If Mike's Cleaning Pty Ltd is now paying wages, the company needs to issue employment contracts from 1 July, register for PAYG withholding and super, and carry across the correct employment records. Mike shouldn't assume that the employees have started from zero just because the company is new.

If you're changing duties, hours or locations at the same time, get advice before you act. A restructure doesn't give you a free pass to reduce entitlements or change agreed employment terms without following the right process.

What Assets And IP Need To Move To The Company?

Your business assets and intellectual property need to be identified and formally transferred to the company where appropriate.

This is the part that can feel obvious until you write it down. If you bought a laptop, van, stock, software licence or domain name as a sole trader, the company may not automatically own or control it.

Start by making an asset list. Include:

• equipment, tools, vehicles and stock
• customer lists and supplier lists
• website content, photos, copy and branding files
• domain names, email accounts and social media accounts
• registered trade marks and pending trade mark applications
• copyright in logos, designs, content, code and course materials
• business processes, templates, manuals and know-how

Some assets can be transferred with a business sale or transfer agreement. Some require third party consent, such as leased vehicles, financed equipment or software licences. If an asset is subject to a security interest on the Personal Property Securities Register, you may also need to deal with that before moving it.

IP deserves special attention. Copyright assignments should be in writing and signed. Registered trade marks should be updated with IP Australia. If a contractor created your logo, website or software, check whether you actually own the IP before trying to transfer it to the company.

For privacy, review what customer and employee information is moving into the company. If the Privacy Act 1988 applies to your business, or you handle sensitive information, health information, credit information or large volumes of customer data, update your privacy policy and collection notices. The small business privacy exemption generally applies to businesses with annual turnover of $3 million or less, but there are exceptions, so check this carefully.

What Documents Should You Have In Place?

You should have written documents that show what moved to the company, when it moved and what each party agreed.

Templates can be helpful as a starting point, but they often miss the details that matter in a restructure, such as employee service, contract consent, IP ownership and asset values. A lawyer should tailor the documents before you use them.

Your document pack will depend on your business, but it often includes:

• Company constitution: Sets the rules for how the company is governed.
• Shareholders agreement: Useful if there's more than one shareholder, or if someone may join later.
• Business transfer agreement: Records the transfer of business assets, goodwill, contracts and IP from you to the company.
• Contract assignment or novation documents: Used where customers, suppliers or landlords need to agree to the transfer.
• Employment contracts: Put staff onto company employment terms.
• Updated customer terms: Name the company and set out payment, liability, consumer law and service terms.
• Privacy policy and website terms: Update the legal entity, ABN and data handling details.
• Customer and supplier notices: Tell people who they're now dealing with and where to pay invoices.

Business Transfer Agreement Outline

A simple business transfer agreement outline might cover the following sections:

1. Parties: Name you as the transferor and the company as the transferee.
2. Transfer Date: State the date the business moves to the company.
3. Business Assets: List equipment, stock, records, domain names, goodwill and other assets.
4. Contracts: Identify which contracts are assigned, novated or excluded.
5. Intellectual Property: Describe trade marks, copyright, branding and other IP being transferred.
6. Employees: Explain how employees will be offered employment with the company and how entitlements are handled.
7. Liabilities: State which liabilities stay with you and which, if any, the company takes on.
8. Price Or Consideration: Record whether the company pays for the assets, issues shares or uses another arrangement.
9. Records And Handover: Cover delivery of books, customer files, passwords and operational materials.
10. Warranties: Set out basic promises about ownership, authority and information accuracy.

Keep signed copies, board or director approvals and supporting records. If questions come up later, these documents help show that the company properly took over the business.

Key Takeaways

• A sole trader to company restructure creates a new legal entity, so you need more than an ABN update.
• Your company will usually need its own ACN, ABN, GST registration, bank account, insurance and payroll setup.
• Business names, contracts, assets, IP, licences and customer notices should be transferred or updated in writing.
• If you have staff, handle the move carefully under the Fair Work Act, especially service, leave and employment contracts.
• A clear changeover date and tailored transfer documents can help you avoid confusion with customers, suppliers and employees.

If you'd like help with setting up your company, transferring your contracts and business assets, updating your employment documents or preparing customer notices, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.