In our last article, we canvassed the core options when choosing a business structure. Today, we will consider one of the most common and simplest business structures: the Sole Trader.
As a sole trader, you are carrying on the business in your personal capacity. This has some key advantages and disadvantages which we’ve outlined below.
Advantages
- You have complete ownership and control over the business;
- It is relatively inexpensive to establish and maintain the business;
- There are less onerous reporting requirements;
- You can offset business losses against other income (such as investment income or wage income);
- You aren't technically an ‘employee’ of your business. This means don’t have to pay payroll tax, superannuation or workers’ compensation on income you acquire from the business.
Disadvantages
- While you may have complete control over the business, you will also be legally responsible for every aspect of the business. This means you are responsible and liable for all debts and losses of the business. This means if you fail to pay your business loans, your personal assets like your home may be at risk;
- You cannot share the profits or losses with family members;
- You must pay PERSONAL income tax rates on the profits generated by the business. As we will explain, this means you miss out on the attractively low corporate tax rate;
- You CANNOT claim deductions from money used in the business. This includes wages paid to staff.
In our next article, we will consider some of the advantages and disadvantages of a Partnership structure for your business.
If you have further questions, please contact frank@franklaw.com.au
This is not legal advice.