Should Lawyers Operate as a Sole Trader, Company or Trust?
- Mar 4
- 3 min read
Choosing the right business structure is one of the most important decisions when establishing or restructuring a legal practice. The structure you operate under can influence tax outcomes, asset protection, administrative complexity and long term growth opportunities.
For lawyers in Australia, the most common structures are sole trader, company or trust. Each option has its own advantages and considerations depending on the size of the practice, income level and risk profile.
Why Business Structure Matters for Lawyers
Legal practitioners operate in a profession that carries significant professional and financial risk. As a result, the business structure you choose should balance:
Tax efficiency
Asset protection
Compliance with legal profession regulations
Administrative obligations
Scalability of the practice
While there is no one-size-fits-all approach, understanding the differences between structures can help ensure your practice is set up for both protection and growth.
Operating as a Sole Trader
A sole trader structure is the simplest and most common starting point for individual practitioners.
Under this structure, the lawyer and the business are legally the same entity.
Advantages
Simple and inexpensive to set up
Minimal compliance and reporting requirements
Full control over business decisions
Straightforward tax reporting through individual tax returns
Considerations
Unlimited personal liability - personal assets may be exposed to business risks
Income taxed at individual marginal tax rates (which can reach up to 47%)
Limited ability to split income with family members
May not be ideal for larger or growing practices
For many lawyers starting out as sole practitioners, this structure can be suitable initially but may become less efficient as income grows.
Operating Through a Company
A company structure involves creating a separate legal entity that operates the legal practice.
The company earns the income and pays tax on its profits.
Advantages
Limited liability protection for shareholders (subject to professional obligations)
Profits taxed at the corporate tax rate (currently 25% for base rate entities)
Greater flexibility for reinvesting profits back into the practice
Often viewed as more professional or scalable for growing firms
Considerations
Higher setup and ongoing compliance costs
Additional reporting requirements with ASIC
Profits withdrawn personally may still trigger additional tax
Many mid sized legal practices adopt a company structure because it allows them to retain profits in the business and support future growth.
Operating Through a Trust
Trust structures are commonly used in professional services where income distribution flexibility and asset protection are priorities.
The most common type used by professionals is a discretionary (family) trust.
Advantages
Ability to distribute income to beneficiaries in a tax effective way
Potential asset protection benefits
Flexibility in structuring ownership
Considerations
More complex to establish and administer
Professional regulation may restrict certain ownership arrangements
Profits generally must be distributed each year to avoid penalty tax rates
Trust structures are often used in combination with corporate beneficiaries or service entities for tax planning purposes.
What Does a Lawyer Need to Consider When Deciding
1. Risk and Asset Protection
Legal practitioners face professional liability risks, making asset protection a key consideration.
2. Income Levels
Higher income practices may benefit from structures that allow tax planning flexibility.
3. Growth Plans
Practices intending to hire staff, bring in partners or expand services may require a structure that supports scalability.
4. Regulatory Requirements
Legal profession regulations may impact who can own or control a legal practice, depending on the state or territory.
5. Administrative Complexity
More sophisticated structures can provide tax advantages but also come with additional compliance obligations.
How Can Rise Accountants Help
At Rise Accountants, we work with professionals to ensure their business structure supports both compliance and strategic growth. Our team can help you:
Assess whether a sole trader, company or trust structure is most appropriate for your circumstances
Structure your practice in a way that supports tax efficiency and asset protection
Plan for future growth, including bringing on partners or expanding your firm
Navigate the ongoing tax and compliance requirements associated with your chosen structure
With the right advice, you can ensure your legal practice is structured to support long term success while remaining compliant with regulatory requirements.