Company or trust for a small business in Australia?
Quick answer: A company and a trust work very differently. A company is a separate legal entity owned by shareholders and run by directors. A trust is a relationship where a trustee runs the business for the benefit of beneficiaries. Which one suits you depends on your family, your plans, your risks and your admin appetite, so it is worth getting advice before you choose.
Key takeaways
A company is its own legal entity. A trust is not: the trustee is the one who takes on the debts and obligations.
The two are taxed differently, and the paperwork is different too.
Sole trader and partnership are simpler, but the official guidance says your personal liability is unlimited.
Changing structure later can be harder than starting with the right one, so decide with the full picture.
Please speak to a registered tax agent or another qualified adviser before you set anything up. This article is general information only.
What is the basic difference between a company and a trust?
A company is a separate legal entity with its own tax and super obligations, owned by its shareholders and run by its directors. A trust is not a legal person. A trustee holds and runs the business for the beneficiaries, usually under a trust deed that sets out the trustee's powers and the beneficiaries' interests.
That is the core of it. The ATO's business structures page describes a company in these terms, and business.gov.au lists sole trader, partnership, company and trust as the main structures to choose from. The ATO's trusts guidance notes that a trust set up to run a business will normally have a trust deed.
Who owns and controls the business?
In a company, shareholders own it and directors run it. In a trust, the trustee controls the assets and decisions, while beneficiaries are the people the trust is run for. Who can do what in a trust depends on its deed, so the deed matters a great deal.
ASIC's pages on company officeholders explain the roles of directors and secretaries. We didn't find an official plain-language summary of who controls what inside different kinds of trusts, because it depends on each deed. That is one reason to have a professional read yours.
Who is liable if the business can't pay its debts?
With a company, the business.gov.au guidance says your personal assets are generally not at risk in the same way as a sole trader's. With a trust, the ATO says the trustee is personally liable for the trust's debts, although the trustee can generally be reimbursed from trust property for liabilities properly incurred. Details vary, so get advice.
Sole traders and partners, by contrast, have unlimited personal liability according to business.gov.au. The ATO's guidance on trustees is in its trusts, trustees and beneficiaries section and related practice statements. Directors also have their own duties, including not trading while insolvent, as set out on ASIC's officeholder obligations page. A liability shield is never absolute, so ask what applies to your situation.
How are companies and trusts taxed?
A company lodges its own tax return and pays tax on its own income. A trust generally doesn't pay tax on income it distributes: beneficiaries include their share in their own returns, and the trustee is liable for tax on undistributed income. Rates and thresholds change, so check the ATO for the current ones.
For a company, the ATO describes profits reaching shareholders as dividends, which can carry franking credits, and it has special rules (Division 7A) about payments, loans and benefits from a private company to shareholders or their associates. For a trust, the ATO says the trustee lodges an annual trust tax return that includes a statement of how income was distributed, and that a trust loss can't be distributed to beneficiaries. Closely held trusts have extra reporting rules. See the ATO pages on trusts registration and reporting and private company benefits.
We haven't quoted any tax rates here. They change, and which rate applies depends on who receives the income. A registered tax agent can work this out for your circumstances.
What does it cost in time and admin to run?
Both involve more admin than a sole trader. business.gov.au says a company has more reporting and legal obligations than a sole trader and that a trust can be complex and costly to set up. We haven't quoted cost figures because they vary by provider and circumstance.
Company obligations include ASIC's annual review: ASIC says companies must keep their details up to date (changes within 28 days) and directors must pass a solvency resolution within two months of the review date, unless a financial report was lodged in the past 12 months. See ASIC's company annual review page. A trust needs its own TFN and an annual trust tax return, and the trustee should keep good records of distributions. We didn't find official guidance on a trust's ASIC obligations, as a trust isn't a company.
How flexible is each structure, and can I change later?
Flexibility depends on the structure: a trust deed can set how income is shared, while a company's shares and constitution set ownership. business.gov.au says it is easier to move from sole trader to a partnership or company than to change from a company, so think about where the business is heading before you start.
We didn't find official guidance that ranks the two on flexibility, so treat any claim that one is "more flexible" with caution. The business.gov.au pages on changing your business structure cover moving between structures. Changing can have tax and legal consequences, which is a good reason to speak to a registered tax agent first.
Company vs trust at a glance
| Topic | Company | Trust | |---|---|---| | What it is | A separate legal entity (ATO) | A relationship where a trustee runs the business for beneficiaries; not a legal person (ATO) | | Who owns and controls | Shareholders own; directors run it | Trustee controls; beneficiaries benefit; the trust deed sets out powers and interests | | Liability | business.gov.au: personal assets are generally not at risk in the same way as for sole traders | ATO: trustee is personally liable for trust debts, with a right to be reimbursed from trust property in some cases | | Tax at a high level | Files its own return; profits reach shareholders as dividends; Division 7A rules apply to some payments | Trustee lodges an annual trust return; beneficiaries generally pay tax on income distributed to them; trustee on undistributed income | | Registrations | ASIC registration; ABN, TFN and other registrations as needed | Own TFN; ABN if carrying on an enterprise; GST once over the threshold | | Ongoing admin | ASIC annual review, 28-day updates, solvency resolution | Annual trust tax return, distribution statement, trust records | | Set-up | More setup and reporting than a sole trader (business.gov.au) | Can be complex and costly to set up (business.gov.au); needs a trust deed |
For reference, business.gov.au says a sole trader has unlimited liability and reports business income in their own tax return, and that a partnership is two or more people running a business together, where a partnership agreement is a good idea.
How do I decide?
There is no official "right" answer, and we aren't recommending one. Work through these steps, then take your answers to an adviser.
Write down who is involved. Who will own it, who will run it, and who should share in the income?
List your risks. What debts, contracts or claims could the business face, and who would be exposed?
Think about tax. Who will receive the income, and how will that be taxed? Ask a registered tax agent to model it.
Be honest about admin. Will you keep up with ASIC and ATO obligations, records and, for a trust, distributions?
Plan ahead. Will you bring in partners, sell, or pass the business on? Changing later can be harder.
Get advice before you set up. A registered tax agent, accountant or lawyer can check your facts against the current rules.
How Marl can help
If you'd like to talk through your situation, you are welcome to contact Marl. We can't recommend a structure in an article, and we don't want to guess without knowing your circumstances.
Frequently asked questions
Is a trust better than a company? Neither is better in every case. They differ on liability, tax, admin and flexibility, and the right fit depends on your circumstances. The official sources describe the differences rather than pick a winner, so we don't either. A registered tax agent can compare them for you.
Does a company protect my personal assets? business.gov.au says a company is a separate legal entity and that your personal assets are not at risk in the way they are for a sole trader. Directors still have legal duties, including preventing insolvent trading, so it isn't a blanket protection.
Does a trust pay tax? The ATO says beneficiaries generally pay tax on net income distributed to them, while the trustee is liable for tax on undistributed income and may pay for some beneficiaries, such as non-residents. The trustee must lodge an annual trust tax return. Check the current rules.
Can I change structure later? Yes, but business.gov.au says it is easier to move from sole trader to a partnership or company than to change out of a company. Changes can have tax and legal consequences, so get advice first.
Can the same person be a director and a shareholder? We didn't find an ASIC page that directly answers this in the sources we checked. ASIC explains the officeholder roles of directors and secretaries, and ATO describes shareholders as owners and directors as managers. Check the ASIC pages or ask your adviser.
Sources
This article is general information only. It is general in nature, does not take into account your objectives, financial situation or needs, and is not legal, tax or financial advice. Speak to a qualified adviser or registered tax agent before you act. Last updated 4 November 2026.
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