How to Change from Sole Trader to Company 

Yes, you can change from a sole trader to a company in Australia. Many sole traders make this common business structure change in Australia as their operations grow. 

That said, it’s not a simple “upgrade.” A company becomes a separate legal entity from you as an individual, which means starting fresh in key areas like registration and tax IDs. The shift from sole trader to company in Australia offers benefits such as limited liability, but does involve some admin work. 

To convert a sole trader to a company or register a company after being a sole trader, you must:

• Register a company with ASIC to get an Australian Company Number (ACN).
• Apply for a new ABN for the company.

This is critical: You can’t reuse your sole trader ABN. A company must register its own ABN. While you don’t need to cancel your old ABN if you’re winding down the sole trader, the company you register will still need its own.

In this guide, we’ll walk you through company registration in Australia, what happens to the ABN when changing to a company, and other legal aspects of this shift. By the end, you’ll have a clear pathway to becoming a Pty Ltd. 

What actually changes when you move from a sole trader to a company

A sole trader vs a company in Australia differs fundamentally in structure, risk, and operations. Here are the key aspects you need to understand before making the switch. 

• Legal structure: As a sole trader, you are the business; it’s not a separate entity. Meanwhile, a company is an entity owned by shareholders (often just you) and run by directors.
• Liability exposure: Sole traders have unlimited personal liability; your home or savings could be at risk. Companies limit liability to company assets (unless you give personal guarantees).
• Tax treatment: Sole traders report income on personal tax returns (up to 45% marginal rate). Companies pay a flat 25-30% tax (base rate entity or standard), with dividends taxed personally later and often offset by franking credits.
• Credibility: Companies signal professionalism to clients, suppliers, and lenders, often unlocking better contracts or finance.

Here’s a snapshot:

Aspect	Sole Trader	Company
Legal Entity	You personally	Separate entity (ACN)
Liability	Unlimited (personal assets at risk)	Limited to company assets
Tax Rate	Personal rates (0-45%)	Flat 25-30% + dividends
Setup Cost	Low (ABN free)	$600+ (ASIC fees, advice)
Credibility	Basic	High (professional image)
Compliance	Simple, personal tax return	Annual ASIC returns, records, company tax return

Why people make the switch (and when it usually makes sense)

Switching from sole trader to company isn’t for everyone. There are potential benefits to registering a company, but whether it’s right for you depends on your business. 

Here are some common reasons sole traders make the switch:  

• Revenue growth: Handling higher profits can increase your personal tax burden. Companies may offer lower tax rates and higher flexibility. 
• Hiring staff: PAYG withholding and superannuation obligations multiply. Companies handle this cleanly as employers.
• Increased risk or contracts: High-value deals or liability-prone work (e.g., consulting) demand limited liability.
• Clearer separation: Mixing personal/business finances invites ATO scrutiny; companies enforce boundaries.
• Preparing for scale or partnerships: Investors or co-owners prefer shares over sole trader setups.

Registering a company often makes sense when you feel that admin is getting too complex or you’re worried about your personal assets. Of course, there aren’t any hard thresholds. If you’re still unsure, it might be wise to get professional help to determine the best next steps. 

How to change from a sole trader to a company (step-by-step)

If you’ve decided to change your business structure, you’ll need to follow several critical steps. Follow this straightforward company setup checklist in Australia, and the process will be seamless. 

Pro tip: Time it for the financial year-end to simplify taxes.

Process Map: Sole Trader → Company (Australia)

Now, the steps:

1. Register your company (ACN): Use ASIC’s online portal or hire an agent to register your company’s ACN. Pick the Pty Ltd structure, which is standard for small businesses. In 2026, expect to pay about $600 in fees. You will need to provide the director’s details, the share structure, and a basic constitution document.
2. Apply for a new company ABN: Once you have your ACN, you can register your new ABN. Remember, you can’t use your sole trader one. Sole trader ABN vs company ABN are entity-specific, so the company gets its own. You can do this for free online or as part of a company set-up package with your agent. 
3. Register for tax obligations: Check whether your turnover exceeds $75,000 or if you expect it to soon. If so, register for GST. If you’re planning to hire staff, you’ll also need to register for PAYG withholdings. 
4. Open a company bank account: Set up an account solely in the company’s name. Keep it completely separate from your personal banking. This is essential to pass audits and avoid tax issues.
5. Transfer assets, business name, and contracts: Move physical assets, IP, and your business name to the company via formal documents like sales agreements. Review contracts and re-sign them in the company name to ensure they transfer properly. Make sure you get tax advice about the capital gains tax impact of these transactions.
6. Update invoices and systems: Switch your software, such as Xero or QuickBooks, to use the new company ABN and ACN. Update all templates, then notify clients and suppliers about the change.

What happens to your existing business when you switch

Fear not! What happens to ABN when changing to a company won’t disrupt everything. If you plan well, you can minimise downtime for your business. 

Here is what’s going to happen. 

• ABN: Sole trader ABN stays with the individual. You can cancel it if you’re fully ceasing; otherwise, keep it for personal use. The company gets a fresh one.
• Business name: You can keep your business name when moving to a company. You’ll need to transfer it via ASIC/ABR for a small fee. Re-register if needed.
• Contracts: Any contracts you already have in place don’t auto-transfer. Review, novate, or re-sign client contracts and supplier agreements in your new company’s name. 
• Assets and IP: Transfer assets from sole trader to company via a sale/assignment. Document at market value and get tax advice on the impact to the sole trader and company. Use deeds for IP.
• Clients and suppliers: Send update letters with the new ABN/ACN. Most need admin tweaks, but there is usually no need for full renegotiation.

Importantly, cease sole trader trading gradually and make sure you track all dates in detail for future ATO reporting. 

Common mistakes to avoid when switching to a company

One of the biggest challenges of changing from a sole trader to a company is the tax implications. Protect yourself from ATO penalties, disputes, and scrutiny by avoiding the following errors. 

1. Continuing to invoice under sole trader ABN: Remember that an ACN isn’t the same as an ABN. Even if you’ve registered your company, you need to get its new ABN before you start trading.  
2. Not transferring intellectual property: Your original IP belongs to you. Formally transfer it to your company to use and protect it. 
3. Mixing personal and company finances: Without clear financial separation, lines blur and can even trigger ATO audits. Use separate accounts meticulously. 
4. Assuming contracts “carry over”: They don’t. Making this assumption leads to invalid agreements.
5. Switching mid-year without tracking effective dates: It’s difficult to split taxes if you switch mid-year. Time your change to the end of June to avoid tax confusion. 
6. Ignoring ongoing ASIC duties: As a company, you have more obligations. Forget annual reviews? You can face fines up to $13k.

To get every step right, consult an accountant or lawyer early and avoid these and other possible pitfalls. 

Checklist — Before you start operating as a company

Ready to make the change? Tick these off:

• Company registered (ACN issued by ASIC)
• New company ABN registered (and TFN if needed)
• Business name addressed (transferred/re-registered)
• Contracts reviewed or reissued in the company name
• Bank account open in the company name
• Accounting and invoicing systems updated (new ABN/ACN)
• Assets/IP transferred (documented)
• Clients/suppliers notified
• Old sole trader ABN status checked (active/ceased)
• Accountant briefed on tax split

FAQ

Do I need a new ABN when changing from a sole trader to a company?

Yes, you will need a new ABN for your company. Your existing sole trader ABN is tied to you personally. Once you register the company and receive its ACN, you can apply for the company’s own ABN through the ABR.

Can I keep my business name when I become a company?

In most cases, yes, you can keep using your business name. Start by checking its availability on ASIC Connect. If it’s free, you can transfer it or re-register it under the company. Just ensure it doesn’t infringe on any registered trademarks.

What happens if I have already invoiced under my sole trader ABN?

It depends on timing. Invoices issued before the switch are valid and reportable on your personal tax return. For any issued after the switch, void them and reissue using the new company ABN to stay compliant. Always track these dates carefully for tax purposes.

How Lawpath can help

Switching from a sole trader to a company in Australia is an important step towards building a scalable business with better protection. Use the checklist above to make the exciting move! 

Ready to get started, but need some more help?? Check out Lawpath’s simple, user-friendly tools: Register your company now. You’ve got this!