What is a sole trader?
A sole trader is the simplest form of setting up a business. This business structure is relatively easy and inexpensive to set up. As a sole trader you are legally liable for all aspects of business including debts and/or losses – these can’t be shared with other individuals. You are generally in full charge of starting and running the business and/or any decisions.
Advantages of a sole trader
1. Easy to set up and inexpensive to run
2. You have full control over your assets and business decisions
3. Generally requires less reporting and paperwork
4. Allows you to lodge your tax returns under your individual tax file number (TFN)
5. Doesn’t require a separate bank account, unlike a company business structure. Remember it’s advisable to keep your financial records for at least 5 years
6. You have the ability to set up an Australian Business Number (ABN), this is not compulsory but is required if you want to obtain a domain name
7. It is a simple process to change your business structure if your business expands
Disadvantages of a sole trader
1. Unlimited liability of your personal assets if things were to go wrong
2. You will pay income tax at personal rates
3. You are not covered by workers compensation in the case of any injury at work
It is important to understand the differences in business structures when researching your options. We advise you to seek legal or other professional advice before deciding on the best structure for you.
Next Steps: Register an Australian Business Name