The most cost effective and straightforward business structure you could set up in Australia is a sole proprietorship or sole trader. It’s a business type that doesn’t have any legal distinction between the business entity and the owner.
A sole trader business structure is popular among consultants and individual contractors. Most operate under their personal names because you’re not required to have a separate trade or business name. Just as it’s easy to set up, a sole trader business is also relatively easy to dissolve.
Are you thinking of registering as a sole trader? Here are some tips to help you get started.
Sole Trader Vs. a Company and a Partnership
The main advantage of registering as a sole trader is that you don’t have to pay workers’ compensation, PAYG tax withholding and payroll tax (if you do not employ staff), as you’re not considered an employee of your business. Additionally, you are able to offset any losses in your business against other income-generating assets, such as your personally held investments provided certain criteria are met. A Sole Trader structure may suit best for individuals operating as consultants or individual contractors due to Personal Services Income issues, however this will depend on your particular situation.
A Sole Trader structure offers complete control over your business compared to a partnership or company structure where you may have other partners.
Another factor to consider is that this type of structure does not offer the income tax minimisation opportunities that a company structure could potentially offer.
Unlike a company structure, you have full liability for debts of your business as there is no legal distinction between private and business assets. This liability could place your personal assets at risk. Because you and your business aren’t two separate entities, your business’s debt could be considered your personal debt, too. However, note that even under a company structure, the director can be personally liable for debts such as unpaid employee entitlements.
With a partnership, each partner is jointly and severally liable for the partnership’s debts – that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts.
Things You Need to Register as a Sole Trader
If you would be using your name, you won’t have to register a business name to set up a sole trader business.
You will first need to apply for an Australian Business Number (ABN).
If your annual business turnover is or likely to be more than $75,000/annum, you are required to register your business for goods and services tax (GST).
Finally, don’t forget to include your business income and losses as part of your income tax return.
Not sure if a sole trader is the right business structure for you? Call us at 03 9885 9793 or fill out our contact form to determine how we can help you get your business off the ground.