Growing Fast? Here’s When to Re-structure Your Business
Rapid business growth is exciting, but it can also expose cracks in your business’s foundations. The structure you chose when you first started out may not be the best fit as your team, revenue, and risk profile evolve.
While changing your business structure is a legal or tax decision, it’s also a strategic move that can protect your assets, optimise tax outcomes, and set you up for sustainable growth.
Why Business Structure Matters
The way your business is structured affects almost every aspect of how it operates, financially, legally, and strategically. While it’s common for small businesses to choose a simple structure when starting out, the “default” option can quickly become a limitation as the business grows. When we say “default” option, it’s common for small businesses to start as a partnership or sole trader in the early days. But businesses can quickly outgrow those simple structures. Here’s why getting your structure right matters:
Tax optimisation
Different structures are taxed in different ways. Sole traders and partnerships are taxed at individual marginal rates, which can climb to 45% (plus 2% Medicare levy) as your income grows. Companies, on the other hand, pay a flat corporate tax rate of 30% (or 25% if it’s a base rate entity), which may be lower than your personal rate. Trusts can distribute income among beneficiaries (for example, family members) in a way that can reduce the overall tax burden.
By reviewing your structure, you may uncover legitimate strategies for reducing tax, retaining more profit in the business, and improving cash flow, without crossing into risky tax avoidance territory.
Learn more about the four different business structures and their taxation benefits.
Personal liability risks
If your business runs into trouble, be it unpaid debts, a lawsuit, or a contractual dispute, your personal liability depends on your structure. Sole traders and partnerships offer little to no separation between personal and business assets, meaning your home, savings, or other investments could be at risk. Companies and certain trust arrangements create a legal barrier between the business and its owners, giving you stronger protection. For businesses in industries with higher risk exposure, this protection can be the difference between a setback and personal financial ruin.
Profit distribution
Trading as a sole trader or in a partnership means all profits flow directly to the owners and are taxed at their personal marginal tax rates—potentially pushing you into higher tax brackets as the business grows. Discretionary trusts offer greater flexibility by allowing you to distribute income among beneficiaries in a way that can minimise the overall tax burden and support broader family wealth planning. This flexibility can be especially valuable when multiple stakeholders or family members are involved.
Companies work differently again. Profits are taxed at the flat corporate rate and can be retained in the company to fund growth, rather than being distributed immediately. When profits are paid out to owners as dividends, they come with franking credits for the tax already paid by the company, which can reduce the overall tax payable by the shareholder. This ability to retain earnings and control the timing of distributions can be a powerful tool for managing cash flow and long-term tax efficiency.
Compliance requirements
Each structure comes with its own compliance obligations and ongoing costs. A sole trader arrangement is relatively simple, with minimal reporting requirements, but may not provide the protection or flexibility you need. Companies have stricter record-keeping, reporting to ASIC, and governance requirements, while trusts have their own set of legal and tax compliance rules. A mismatch between your structure and your operational complexity can lead to wasted time, higher costs, and unnecessary administrative headaches.
Signs it’s time to re-structure
Your personal assets are at risk
If you’re operating as a sole trader or partnership, your personal assets could be exposed if something goes wrong. Moving to a company or trust structure can help separate personal and business assets.
You’re paying more tax than you need to
As revenue grows, a different structure may allow for better tax efficiency, such as splitting income among family members or retaining profits in a company at a lower tax rate.
You’re bringing in business partners or investors
If you’re planning to expand ownership, sell equity, or formalise partnerships, you may need a company or more complex structure to manage shareholding and responsibilities.
Maybe you’re going into business with a mate, bringing on a foreman as a part-owner, or getting backing from an investor to buy new equipment or take on larger projects. If you’re currently operating as a sole trader or in an informal partnership, this can get messy fast.
A company structure makes it easier to formalise who owns what, how profits are shared, and who’s responsible for which decisions. It also allows you to issue shares, which can be sold to new partners or investors without dismantling the whole business. This clarity is critical for keeping relationships healthy, but also for protecting yourself legally and financially if a partner decides to leave or sell their share in the future.
You’re expanding into new markets or services
Growth doesn’t just mean taking on more jobs, it often means branching out. You might start offering new services (like a plumber adding gas fitting), moving into commercial contracts, or expanding into a different location or region. Each new service line or branch brings its own risks — different clients, compliance requirements, contracts, and sometimes even equipment finance or subcontractor arrangements.
By structuring separate entities for each division or location, you can keep the risks contained. If something goes wrong in one arm of the business, it doesn’t have to threaten the rest. For example, your residential building arm and your commercial fit-out division could operate under different entities, so legal or financial issues in one don’t spill over into the other. This setup also makes it easier to track profitability by division and can help when seeking finance for future projects.
You’re preparing for sale or succession
If your long-term plan involves selling the business or passing it to family, restructuring can make the transfer more tax-efficient and legally straightforward.
The process of restructuring
Restructuring can involve:
Reviewing your current structure
The first step is a thorough review of your existing setup. This includes assessing how your business is taxed, the level of personal liability you face, operational efficiency, and whether your current structure aligns with your growth goals. For example, a sole trader expanding into multiple locations may be exposing themselves to unnecessary personal risk. Understanding these implications is critical before making any changes.
Choosing the right entity
Next, you need to decide which structure best supports your goals. Consider factors such as risk exposure, flexibility in distributing profits, tax efficiency, and long-term scalability. This could mean deciding between remaining a sole trader, forming a company, or establishing a trust to manage income distribution for family members involved in the business. The right choice will depend on your unique situation and ambitions.
Choosing the right entity is something that requires expertise from an accountant. It’s not as simple as choosing one structure; there are things to consider like using a corporate trustee for a discretionary trust, whether you need a holding company, or how you’ll distribute funds to directors. Getting advice early could make a huge difference to your success.
Managing the transfer of assets
Changing structures often involves moving assets, such as equipment, vehicles, contracts, or property, from one entity to another. This step must be managed carefully to comply with capital gains tax (CGT) and stamp duty rules, avoiding unnecessary tax liabilities or legal complications. For example, if you’re moving your assets from a sole trader to a company, doing this incorrectly could trigger unexpected taxes.
Updating registrations and contracts
Once the new structure is in place, all business registrations and legal agreements need to be updated. This includes your ABN, GST registration, bank accounts, leases, supplier agreements, and insurance policies. Failing to update these can create compliance issues or disrupt your operations — imagine invoices being sent to the old entity or contracts being technically invalid.
Communicating with stakeholders
Finally, it’s important to communicate the changes clearly to everyone involved: staff, customers, suppliers, and partners. Transparency helps maintain trust and ensures that everyone understands the new arrangements, such as who has signing authority, where invoices should be paid, or how contracts are now managed. Proper communication reduces confusion and keeps the business running smoothly during the transition.
When to Seek Advice
Restructuring has legal, tax, and operational consequences. It’s essential to work with a qualified accountant to ensure the move is both compliant and beneficial in the long term.
Business growth is an exciting milestone, but it’s also the perfect time to ensure your structure is working for you, not against you. With the right framework in place, you can grow with confidence, protect what you’ve built, and set your business up for the next stage of success.
