Changing from a sole trader to a company creates a new legal entity.
This should be discussed with the Professional Indemnity insurer.
The insurance arrangement may need to recognise both:
- the new company undertaking future engineering work, and
- the individual or former sole-trader business responsible for earlier work.
This is important because Professional Indemnity claims can arise years after a project was completed.
Simply transferring future work into a company does not remove potential liability arising from services previously performed as a sole trader.
The insurer may amend the existing policy or arrange the insured entities so historical and future exposures are appropriately recognised.
Engineers should therefore consider the insurance position when restructuring the business rather than waiting until the next renewal.
From a business-registration perspective, changing from a sole trader to a company generally creates a new entity and usually requires a new ABN. The insurance issue should therefore be addressed at the same time so the policy clearly recognises both historical and future professional services. See the Australian Business Register guidance on changing business structure.
