Many business owners use the simple sole trading structure. However, this is rarely the best fit for your business.
Operating as a sole trader may seem appealing at first because of its relatively cheap and simple form.
Once your business gets going, it is likely that you want to grow the size and profitability of your business and a sole trading structure is unsuited to this and presents significant risks.
The greatest disadvantage in the sole trader structure is its unlimited liability. You are liable for the debts and legal obligations of the business. If things go south, your personal assets (e.g. your bank accounts, your home, your boat) may be exposed.
A second disadvantage of sole trading is the simplicity that made it so appealing. Sole traders are unable to split their business profits or losses with other family members or friends. Sole traders are personally responsible for the taxation of the income of the business. This means you might pay a higher rate than an alternative structure, such as a company.
If you have further questions, please contact us at frank@franklaw.com.au
This is not legal advice.
Written by Tim Cargill & Zdenka Marinov and edited by Andrew Graham.