Starting a trade business can feel like several jobs at once. The legal structure comes first, registration follows, and insurance must match the business that now exists. That order matters because it decides who is legally responsible and which business details should be used when cover is arranged.
This guide walks through what to arrange before your first paid job. It explains the difference between a sole trader and a company, identifies insurance that the law may require, and sets out the questions to ask before buying a first policy.
1. Choose the business structure first
The business structure is not just an administrative choice. It sets the legal person or entity that carries the business liability. Choose it before registering the business or comparing insurance.
ASIC identifies four main business structures:
- A sole trader is the simplest structure. One person owns the business and makes the decisions. A sole trader has fewer compliance and legal obligations than the other structures.
- A partnership involves two or more people doing business together. They own and make decisions together, and share the income or losses.
- A company is a separate legal entity owned by members or shareholders. Officeholders make key decisions.
- A trust is another possible structure and holds property or assets.
The most direct choice for a one-person trade business is usually between a sole trader and a company, but the right choice depends on the business arrangement. If you are considering a partnership or trust, do not apply the liability rules for a sole trader or company without first getting advice about that structure.
The structure choice matters because it affects both registration and insurance. It determines whether the business is operated by an individual or by a separate company. It also sets the starting point for deciding which person or entity the insurance should concern.
Get this decision settled before moving through the rest of the sequence.
2. Complete the registration that follows
The registration requirements depend on the structure you have chosen.
If you choose a company
A company must be registered on the Australian companies register, which is managed by ASIC.
ASIC issues an Australian Company Number, or ACN, when the company is registered. The ACN is used in the company name along with its legal status.
The company registration process also requires you to:
- choose a state or territory of registration, even if the company will operate nationwide
- provide a registered office address
- provide a principal place of business address
- establish how the company will be internally managed, using replaceable rules or its own constitution
- provide the name and home address of each member or shareholder if it is a proprietary company
A company must also be registered on the business names register if it does business under a name other than its company name.
Before arranging insurance, check that the legal name and other registration details for the company are correct. The business identity used for insurance should be consistent with the company you have actually registered.
If you choose to be a sole trader
A sole trader is not a company, so the sole trader does not register on the Australian companies register.
A sole trader must be on the business names register if they conduct the business under a name other than their personal name. If the business is traded under the sole trader’s personal name, they do not have to register that name.
This makes the business-name decision part of the registration sequence. Decide whether you will trade under your personal name or another name, then complete the relevant registration before moving on to insurance.
Partnerships and trusts can have different registration and legal requirements. If you choose either structure, confirm those requirements specifically rather than following the sole trader or company process.
3. Identify the party legally responsible
Once the structure is chosen, identify who is actually responsible for the business.
A sole trader is legally responsible for all aspects of the business. If damage, injury or another liability arises in the course of the sole-trader business, the legal responsibility rests with the individual operating it.
A company is different. It is a legal entity separate from the people who own and run it. The company can incur debt, sue and be sued. Its liability is limited as a company.
This distinction should carry through to the insurance conversation.
For a sole-trader business, the person operating the business is the legal party. For a company, the company itself is the separate legal entity. Do not treat the company and the people who own or run it as interchangeable when arranging cover.
Before buying a policy, be clear about:
- whether the business is the individual sole trader or the company
- which legal and business names apply
- which people or entities the proposed policy concerns
- whether employees, contractors or other people involved in the work are included
- which risks each policy category is intended to address
Do not assume that one policy answers every question. Public liability, workers compensation, vehicle-related third party personal injury, assets, income protection and business interruption insurance respond to different problems.
Limited liability does not determine what every insurance policy covers. Nor does buying one category of insurance guarantee a claim outcome. The legal structure and the policy terms need to be considered separately.
4. Confirm the insurance the law may require
By law, you may need some insurance to run your business. The requirement depends on the type of work and business structure.
State and territory laws can differ. The relevant issues include your occupation, whether you employ people, whether you engage contractors and whether the business uses motor vehicles. Before your first paid job, check the requirements in the state or territory relevant to the business or work.
Public liability insurance
Public liability insurance can reduce the financial impact on the business if you are liable for damage or injury to another person or their property.
Some states and territories require public liability insurance for certain occupations. Some businesses must have it before they can legally operate.
This means public liability insurance is not necessarily compulsory for every trade business in every state or territory. The occupation and the jurisdiction matter.
Before the first job:
- Identify the work your business will perform.
- Check whether public liability insurance is required for that occupation.
- Check the requirements in the relevant state or territory.
- Make sure any required policy is arranged before legally operating.
Do not assume that having workers compensation or vehicle-related cover removes a separate public liability requirement.
Workers compensation insurance
Workers compensation insurance is generally relevant when you have employees.
Employers must obtain workers compensation insurance from an authorised insurer. It covers the employer and employees against financial hardship if they are injured or become sick because of work.
The law varies in each state and territory. Check the workers compensation regulator in the relevant state or territory for the requirements that apply to your business.
Contractors require particular attention. An independent contractor may need their own workers compensation insurance. If you engage a contractor in your business, check with the workers compensation regulator in your state or territory.
The sole-trader exception is crucial:
Workers compensation insurance does not cover a sole trader personally.
If you are a sole trader, you need to consider your own personal death, illness and disability insurance. You can take out accident and sickness insurance through a private insurer.
That cover is separate from an employer’s workers compensation policy. If a sole trader has employees, the business still needs to consider the employer requirement for those employees, but their workers compensation policy does not provide personal workers compensation cover to the sole trader.
Before buying, check:
- whether the business has employees
- whether the policy has been obtained from an authorised insurer
- which people are covered
- whether contractors are involved
- whether a sole trader needs separate personal accident and sickness cover
Third party personal injury insurance
If the business uses motor vehicles, you may need third party personal injury insurance. This cover is often part of the vehicle registration arrangements.
Confirm the applicable requirements in the relevant state or territory before using a motor vehicle for the business. Check which vehicle use is covered and how the requirement is satisfied through the applicable registration.
This is a separate category from public liability, workers compensation and insurance for business assets. Do not assume one stands in for another.
The three categories that the law may require are therefore:
- public liability insurance for relevant occupations in some states and territories
- workers compensation insurance when the business has employees
- third party personal injury insurance when the business uses motor vehicles
The exact requirement depends on the facts and the state or territory law. Do not treat all three as automatically compulsory, and do not treat all three as optional without checking.
5. Decide which optional cover fits the business
Asset, stock and product insurance, income protection and business interruption insurance are choices rather than the general legal requirements described above. They can still be important before the first paid job because they respond to risks that legal cover may not address.
Assets, stock, products and property
Stock, product and asset insurance can protect business assets, property, stock or products.
Building and contents insurance can cover damage or loss from events including fire, storms and break-ins.
Before buying a first policy, decide what business property and assets need to be considered. Ask which items fall within each category and what type of damage or loss the policy addresses.
Do not assume that one broad asset policy automatically includes everything. Ask how the policy defines the relevant property, stock, products and assets.
Income protection
Income protection can cover part of your income if you are unable to work because of sickness or an accident.
Decide whether this protection is relevant to you or anyone else in the business before buying. Ask questions about:
- whose income is covered
- what sickness or accident would prevent work
- which part of the income the policy can cover
- how the policy defines inability to work
For a sole trader, keep this decision separate from workers compensation. Workers compensation does not personally cover the sole trader.
Business interruption insurance
Business interruption insurance can pay ongoing business costs if an insured event interrupts the business. The evidence for this category includes a fire that damages business property.
The important words are “insured event”. Before buying, ask which events would trigger the policy and which ongoing business costs it can pay.
Asset insurance and business interruption insurance respond to different consequences. One addresses damage or loss to assets and property. The other addresses ongoing costs following an insured interruption.
Optional cover should be considered alongside any legally required insurance. It should not be treated as a substitute for public liability, workers compensation or third party personal injury cover where those categories are required.
6. Ask these questions before buying the first policy
Work through the following questions before arranging cover for the first paid job.
Structure and registration
- What is my legal business structure?
- Which person or entity carries the business liability under that structure?
- If I am a company, is it registered on the Australian companies register managed by ASIC?
- If I trade under a different business name, is that name on the business names register?
- Will the policy use the correct legal and business details?
Legal requirements
- Which insurance does the law require for my occupation in the relevant state or territory?
- Which state or territory regulator should I check for public liability requirements?
- Am I required to have workers compensation insurance because I have employees?
- If I engage an independent contractor, do I need to confirm their insurance position with the state or territory workers compensation regulator?
- Does my use of motor vehicles create a third party personal injury requirement in the relevant state or territory?
Public liability
- What does the public liability policy cover?
- Does it address liability for damage or injury to another person or their property?
- Is public liability insurance required for the exact work my business will perform?
- What occupations and activities does the policy define?
Workers compensation
- Is the policy being arranged with an authorised insurer?
- Which people are covered by the policy?
- Are employees included in the way required by the relevant state or territory law?
- Has the position of any independent contractor been checked with the regulator?
- If I am a sole trader, do I understand that workers compensation does not cover me personally?
- What separate personal death, illness and disability or accident and sickness cover should I consider?
Vehicle-related cover
- What third party personal injury requirements apply to the business’s motor vehicle use?
- Which vehicle registration requirements apply in the relevant state or territory?
- Is the third party cover aligned with the way the business will use the vehicle?
Assets and income
- Which business assets, property, stock and products does the policy cover?
- Would damage or loss from events such as fire, storms or break-ins fall within the policy?
- Whose income would income protection cover?
- What sickness or accident would need to prevent work?
- Which part of the income can the policy cover?
Business interruption
- What is an insured event for the business interruption policy?
- Which interruption would trigger the cover?
- Which ongoing business costs can the policy pay?
- Does the example of a fire-damaged business property reflect the kind of interruption the policy is designed to address?
Finish by asking which parts are legally required, which are optional and which people or assets each category concerns. If an answer is unclear, resolve it with the relevant regulator, insurer or qualified adviser before relying on the policy for the first paid job.