Business Structures: Sole-Traders

The easiest way to start your own business is by becoming a ‘sole-trader.’

Advantages

Unlike other commonly used structures such as companies and partnerships, there is no legal process that needs to be performed to become a sole-trader. It is therefore a very easy, fast and cheap way to enter into business.

Being a sole trader also means you’re self-employed - you will be your own boss and can decide when and where you work. It offers a flexibility you may not otherwise be able to benefit from and also ensures you are able to do the things you love.

Accounting for your profit (or loss) is also a relatively easy task to perform. If you have a profit, you will need to pay tax on this amount at your marginal tax rate. Alternatively, if you have a loss, you will be able to offset this against other income you may earn or offset it against future income.

Being a sole trader still allows you to employ others so you will still be able to grow your business.

Disadvantages

One of the biggest disadvantages in being a sole-trader as that as you are in business in your own name, you will be personally liable for all the debts of your company. However, it is possible to protect your assets by establishing a trust and keeping assets - such as your family home - in the trust rather than in your personal name.

Another disadvantage of using a trust is that it can make it harder to raise finance if you wish to expand your business.

Other Factors To Be Aware Of

When you first start your business, you will not be required to register for GST. However, as your business develops, you may reach the threshold at which point you must be registered for GST. Alternatively, you may wish to opt into the GST regime even if the goods or services you supply do not meet the $60,000 threshold at which point GST is compulsory.

From your second year of business, you may be required to pay provisional tax depending on how your business performed. This would mean that you would need to make payments of tax in advance before the financial year is over at predetermined times.

How We Can Help

If you have any other questions, please contact us and we will be happy to assist you.