When starting a business in Australia, the structure you choose has significant legal, tax, and administrative implications. For most founders, the choice comes down to operating as a Sole Trader or incorporating a Proprietary Limited (Pty Ltd) company.
What is a Sole Trader?
A sole trader is the simplest business structure. It's an individual running a business where the owner is legally responsible for all aspects of the business.
For foreign founders, this structure is generally not viable as it requires an Australian Tax File Number (TFN) and the right to work in Australia, which is difficult to obtain without residency.
What is a Pty Ltd Company?
A Proprietary Limited (Pty Ltd) company is a separate legal entity. It is owned by shareholders and managed by directors. This is the most common and recommended structure for foreign entrepreneurs setting up in Australia.
| Factor | Sole Trader | Pty Ltd Company |
|---|---|---|
| Legal Structure | Owner and business are the same legal entity. | A separate legal entity from its owners (shareholders). |
| Liability | Unlimited personal liability for business debts. | Limited liability. Personal assets are protected. |
| Tax | Business income is taxed at the individual's marginal tax rate. | Profit is taxed at the flat company tax rate (currently 25-30%). |
| Setup Requirement | Requires an Australian Tax File Number (TFN) and ABN. Difficult for non-residents. | Can be owned 100% by foreigners, but requires a resident director. |
The Verdict for Foreign Founders
Due to legal and tax requirements, the **Pty Ltd company is the only practical and recommended structure for non-resident founders** looking to establish a formal business presence in Australia. It offers the crucial benefit of limited liability and can be 100% foreign-owned, provided the resident director requirement is met.