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business entity formation

Disclaimer: Get formal advice when setting up business entity formation strategies. This content is what you can use to explore the options.

Doing busines is risky

You are one dispute, refund demand or copywrite claim away from risking your savings, your laptop or your future earnings.

Most of the strategy here has been to get an ABN as a sole trader. But there might come a time, when you want to setup a proper business structure. Why would you want this?

  • Protection from personal liability
  • Access to tax benefits
  • A more professional image
  • The right foundation to grow your side hustle into a real company

The evolution of structures:

Level 1: Individual earning money (You right now)

  • No structure
  • Full personal liability
  • No tax breaks
  • Amateur status

Level 2: Sole trader (First legal step)

  • You have an ABN
  • Can deduct business expenses
  • Still personally liable
  • Easy and free to set up

Level 3: Pty Ltd Company (The shield)

  • Separate legal entity
  • Personal assets protected
  • Serious tax options
  • More paperwork and costs

Level 4: Corporate Group / Trusts (The empire)

  • Advanced structures for tax and risk
  • Needs legal/accounting help
  • Great for scaling, investment, and IP protection

Business structure options:

Level 1: The sole trader starter pack

What It Is:

  • You = The business
  • You apply for an ABN
  • No separation between you and the business. If you get sued, you get sued.

Pros:

  • Free and fast to set up
  • You keep all profits
  • Easy accounting
  • Great for testing ideas

Cons:

  • You’re legally liable for everything
  • Harder to get funding or investors as there are no shareholdings
  • Fewer tax planning options
  • Business ends if you stop

Perfect For:

  • Making PAYE like income yourself
  • Freelancers and service providers
  • Trying out ideas risk-free
  • Anyone 14+ with parental permission

How to start

  1. Apply for an ABN at abr.gov.au
  2. Register a business name if not trading under your personal name
  3. Open a business bank account
  4. Track income and expenses
  5. Lodge a return via myTax or accountant

Level 2: The Pty Ltd Company

What is it?

  • A separate legal entity
  • You become a Director and/or Shareholder
  • Requires registration with ASIC

Pros:

  • Protects personal assets
  • Looks professional to clients/investors
  • Eligible for company tax rate
  • Can sell shares, raise capital

Cons:

  • Costs ~$500+ to set up
  • Ongoing ASIC fees ($310/year)
  • Requires record-keeping and compliance
  • Not available to minors (but workaround exists)

Perfect for:

  • Making bigger money
  • Working with corporate clients
  • Selling high-risk services/products
  • Thinking long-term or global
  • Where you want to cooperate with others

How to Start:

  • Register with ASIC
  • Get an ACN, then an ABN for the company
  • Set up a company bank account
  • Lodge separate company tax return
  • Stay compliant with ASIC and ATO

Minor workaround:

  • Your parent or guardian becomes the director/shareholder
  • You operate the business
  • Control transferred at 18

Why structure matters:

Scenario 1: In the event a client sues you

  • Sole trader: They can take your car, bank account, or future income
  • Pty Ltd: Only business assets at risk

Scenario 2: You owe money

  • Sole trader: Creditors come after you
  • Pty Ltd: They deal with the company

Being a minor

If you're under 18:

  • You can get an ABN with parental consent
  • You can’t be a company director, but a parent can be one for you
  • You can start invoicing clients
  • You should keep great records and separate your finances
  • You must register for GST if earning $75k+

It takes a lot of courage to start any kind of business. Take care, get good advice - and move carefully!

Conclusion

Choosing the right business structure is a critical decision that evolves with your business growth—from a simple sole trader setup to a more complex Pty Ltd company. Each structure offers different levels of liability protection, tax benefits, and professional credibility, with tradeoffs in cost and administrative complexity. Regardless of which path you choose, the goal is to balance protection of your personal assets with practical considerations for your current business stage, always seeking professional advice before making these important structural decisions.

DISCLAIMER: NONE OF THIS IS ADVICE. GET PROPER ADVICE. THIS IS DESIGNED TO INTRODUCE YOU TO PRINCIPLES YOU NEED TO CONFIRM