Choosing the right business structure shapes your future growth, tax strategy, and investor readiness.
For Australian founders, the Proprietary Limited (Pty Ltd) company remains the gold standard for balancing protection, credibility, and tax efficiency.
A company is a separate legal entity that owns assets, enters contracts, and operates independently from its shareholders and directors under the Corporations Act 2001.
A company exists as its own “legal person.”
It can:
Own property
Enter contracts
Sue and be sued
Continue indefinitely regardless of ownership changes
It’s regulated by the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission (ASIC), ensuring directors act lawfully and maintain compliance.
📊 As of July 2025, more than 2.5 million actively trading Australian businesses operate under a company structure (ABS 8165.0).
Startups choose a Pty Ltd structure for limited liability, investor appeal, tax advantages, and scalability, making it ideal for long-term business and capital growth.
A Pty Ltd company (“Proprietary Limited”) is privately held and limited by shares. It’s the most common choice for growing businesses due to its flexibility and protection.
Key advantages:
Limited liability for shareholders
Easier to attract investors or partners
Tax rate capped at 25% for small businesses
Separation between personal and company finances
Continuous existence regardless of ownership changes
Shareholder deed guide for founders →
The structure also supports employee share schemes, dividend flexibility, and succession planning—making it ideal for founders planning long-term exits or investor rounds.
Startup accounting advisors in Melbourne →
Australian companies pay 25% tax if classed as a base rate entity or 30% for larger corporations, depending on turnover and income composition.
Under the Income Tax Rates Act 1986, company tax depends on two categories:
| Entity Type | Tax Rate | Criteria |
|---|---|---|
| Base Rate Entity (BRE) | 25% | Turnover under $50M, ≤80% active income |
| Standard Company | 30% | Turnover above $50M or >80% passive income |
The Base Rate Entity test allows SMEs to benefit from reduced taxation, providing significant long-term cash flow advantages when profits are reinvested.
Example: A company earning $200,000 profit pays $50,000 tax at 25%, leaving $150,000 to reinvest or distribute.
Business tax services in Melbourne →
Franking credits let shareholders use the company's paid tax as a credit against their own tax, preventing double taxation of dividends.
Australia’s dividend imputation system means that tax already paid by a company is passed through to shareholders as a credit.
When a company issues a franked dividend, the attached credit reflects the company tax already paid.
Example:
The company earns $100,000
Pays $25,000 company tax (25%)
Distributes $75,000 dividend
Shareholder declares $100,000 income but receives a $25,000 credit
If the shareholder’s marginal rate is 30%, they only pay 5% additional tax. If their rate is lower, they may receive a refund.
Directors must act in good faith, maintain accurate records, prevent insolvent trading, and meet tax and superannuation obligations under the Corporations Act.
Directors hold fiduciary duties to act in the best interest of the company.
They must ensure:
The company remains solvent
Financial reports are accurate
PAYG, GST, and Super obligations are met
No misleading conduct occurs
Under the ATO’s Director Penalty Regime, unpaid taxes (e.g., PAYG, super) can make directors personally liable.
While a company provides asset protection, personal responsibility still applies if directors breach duties.
Companies offer limited liability, lower flat tax rates, and easier capital access compared to trusts and partnerships, which have flow-through taxation and higher risk exposure.
| Structure | Control | Liability | Tax Rate | Flexibility | Ideal For |
|---|---|---|---|---|---|
| Sole Trader | Full | Unlimited | 0–47% | Simple | Freelancers |
| Partnership | Shared | Unlimited | 0–47% | Moderate | Small teams |
| Trust | Trustee | Variable | Flow-through | Medium | Family groups |
| Company (Pty Ltd) | Board | Limited | 25–30% | High | Startups/SMEs |
Takeaway: Companies are preferred for scaling, investor funding, and limiting personal exposure.
Partnership structure in Australia →
Companies can access CGT relief including 15-year exemptions, 50% active asset reductions, and retirement exemptions under Division 152 of the ITAA 1997.
Eligible concessions:
15-year exemption: Full CGT relief for significant individuals aged 55+ on retirement
50% active asset reduction: Reduces CGT liability for active business assets
Retirement exemption: Up to $500,000 CGT-free when rolled into super
Rollover relief: For reinvesting in new active assets
These benefits require careful planning to ensure your company meets the “significant individual” and “active asset” criteria.
Only companies can access the R&D tax incentive, which provides refundable tax offsets for eligible research and innovation activities.
The R&D Tax Incentive encourages innovation by offering:
Refundable offset: Corporate rate + 18.5% premium for turnover under $20M
Non-refundable offset: For larger firms based on R&D intensity
This is especially valuable for tech and medical startups developing new intellectual property or software.
Partnerships and trusts are not eligible unless acting through a company entity.
Incorporate when your business earns over $200k, employs staff, attracts investors, or needs liability protection through a company structure.
Indicators it’s time to incorporate:
Revenue > $200,000 per year
Hiring staff or entering large contracts
Seeking external investors
Desire to protect personal assets
Holding valuable IP or long-term projects
Transitioning to a company enables better tax management, asset protection, and succession planning, especially for founders expanding beyond the startup phase.
Sole trader structure in Australia →
42 Advisory helps founders design compliant, tax-efficient company structures using fixed-fee advisory, Xero automation, and ASIC registration support.
Our team simplifies setup and compliance for startups and SMEs by integrating technology and strategy:
ASIC registration and setup
Xero-connected accounting systems
Franking credit and dividend planning
R&D tax support and forecasting
Base Rate Entity tax eligibility assessment
Startup Accounting in Australia guide →
💬 “Our mission is to make business structuring intelligent, calm, and precise — giving founders clarity and confidence from day one.”
📍 42 Advisory, Chadstone VIC — specialists in startup accounting, tax strategy, and business structuring.
Your business structure determines how you pay tax, attract investment, and protect your future wealth.
Choosing the right setup early prevents compliance risk and maximises profitability later.
Together, we’ll design a structure that grows with you.