Change your business structure

The most common business structure changes are:

• sole trader to company
• sole trader to partnership
• partnership to company.

Sole trader to company

As your business grows, you may outgrow your sole trader business structure.

A company is a separate legal entity to you. So a company structure can protect your personal liability if you hire employees, take on an investment or own assets.

A company has more reporting and legal obligations than a sole trader business. You’ll also have some initial and ongoing costs to set up and register your company.

If you decide to bring a partner into your business, you should create a partnership agreement that outlines:

• how your partnership will run
• any intellectual property (IP) you need to transfer
• terms and conditions both parties need to abide by.

Make sure you understand your partnership’s legal, tax and reporting obligations. Some of the laws governing partnerships are different between states and territories.

It’s a good idea to get advice from an accountant or lawyer before changing your business to a partnership.

A company structure can protect you and your partners’ personal liability as your business grows.

To convert from a partnership to a company, you need to set up a new company and dissolve your partnership. You can’t change your partnership directly into a company.

It’s a good idea to get legal and tax advice before changing your partnership to a company.

A few common reasons that businesses change their structure:

• Financial reasons: You may restructure to meet financial goals, such as improving cash flow or profitability. For example, companies are taxed differently to sole traders and partnerships, which can have financial benefits in some cases.
• Risk management: To minimise your personal liability, you may decide to change to a company structure. A company is a separate legal entity to you, which can protect your personal assets.
• Business growth: You might change your business structure to operate in overseas markets, expand your functions or attract new investors.
• Change in ownership: If you take on a business partner, you might decide to change from a sole trader to a partnership structure. If you buy an existing business, changing its structure could help you meet your goals for the business.
• Succession planning: If you’re planning to retire or transfer your business to someone else, restructuring can simplify the process and clarify roles and responsibilities.
• Downsizing: You may want to downsize your business to simplify administrative requirements. For example, moving from a company to sole trader.

Here are some of the things you may need to do when changing business structures. This is not a complete list, so you should speak to an expert to make sure you’ve covered everything.

Make sure you’re picking the right structure

Take some time to understand the positives and negatives of different business structures. This helps you choose the business structure that best suits your business and situation.

Our work out your business registrations tool can help you choose a new business structure and understand the registrations you’ll need.

Apply for a new ABN

If you change your business structure, you’ll generally need to get a new Australian Business Number (ABN) for the new structure.

Transfer or cancel your business name

If you’ve already registered a business name and want to keep it, you’ll need to transfer the name to your new business structure.

If you want to choose a new name, you should cancel your existing business name.

Transfer or cancel a business name through the Australian Securities and Investments Commission (ASIC)

Transfer your IP

If your business owns trademarks or other registered IP rights, you need to transfer them to the new business structure. You also need to update the relevant registers with IP Australia.

Understand any changes to tax obligations

A change of business structure may affect the tax you have to pay or how you report your tax.

The Australian Taxation Office (ATO) can help you understand how changing your business structure affects your tax. This includes the tax implications of incorporating your business as a company.

Review your business plan

Make sure your business plan reflects your new structure and outlines the goals and objectives of your restructured business.