How to know if you're a sole trader

Sole Traders have the highest entry rate of any other structure, and make up over 550,000 businesses in Australia. In this blog, we will explore what it means to have your own business and show you how to start a business as a sole trader.

Advantages

  • You are your own boss
  • You keep all the profits
  • Easy and cheap to set up
  • Easy to change your legal structure in the future

 Disadvantages

  • No legal distinction between private and business assets
  • Your capacity to raise money is limited
  • You’re taxed as a single person
  • High responsibility

What is a Sole Trader?

This is the most popular business structure in Australia. It means that you are the ‘sole’ owner of the business. You have full control and ownership of the entity and you make all the decisions. Whilst it’s the most economic and easiest business to set up, it does have some drawbacks. There is no distinction between you or the business, so you are personally liable for any debts incurred by the business. If it were to go bankrupt, personal assets such as your house and car could be used to pay it off. On the up side, all profits go straight into your pockets. 

Is this for me?

People usually start out with this entity structure because it is really easy to set up. If you are comfortable with the idea that your personal assets are NOT protected then this is probably the right structure for you. It is common to start as a Sole Trader and then incorporate as a Pty Ltd company further down the line. Becoming a company creates a separate legal structure so your personal assets are protected in the event of bankruptcy.

Shaun Meltzer