Business Structure 101 - Sole Trader
Sole Trader is considered the simplest form of business structure as it is run by one owner without having to partner with anyone. In this business structure the owner gets the privilege or responsibility of taking all business decisions solely. If an entrepreneur opts for this business structure, he would be exclusively responsible to run and set up the business without an external help from anyone. The owner becomes in control of everything including the income made through the business and is legally accountable for the finances of the business which may include debts, loans, loss etc.
How to Become a Sole Trader
If you choose to run your business as a Sole Trader, you will have to register and trademark your business name with ASIC (Australian Securities and Investments Commission). But before you do that, take a moment and settle on whether you want to operate your business with your OWN NAME, for example ‘Hugh Parker’ or would you like to choose a business name such as ‘Parker Enterprises’. In both cases, you will need to register your business name and an ABN (Australian Business Number). If you wish to register your business name now, click HERE.
Australian Business Number (ABN)
Also known as ABN, Australian Business Number is an 11 digit business identification number which is to be obtained by every sole trader before kick starting the business. An Australian Business Number is required at most stages of business dealings. You can register for an ABN HERE.
Importance of Obtaining an Australian Business Number (ABN)
Even if you plan to operate your business as a Sole Trader, you need to obtain an ABN. If for any reason you are unable to obtain an ABN, there could be repercussions. Such as:
- - Your clients have the right to withhold 46.5 % of the total payment they are liable to pay you.
- - Not having an ABN may also affect your tax proceedings.
Goods and Services Tax
Goods and Services Tax also known as GST is a 10% tax on most goods and services supplied all over Australia. Generally, businesses are supposed to include GST on the product in the price section. As a Sole Trader, you need to register for GST if your expected turnover is over $75,000. You only register for GST once, even if you have multiple business streams.
This probably is one of the strongest benefits of becoming a sole trader as the income earned by the owner is accounted as his own and as a sole trader he is liable to file for tax as individual tax return. So in other words, a sole trader can trade on his own Tax File Number (TFN).
Every business, small or big needs to be insured so it is protected from any uninvited trouble and also to secure business assets. As a sole trader, the risk is even higher as both business and personal assets are at risk. You’d be the only one responsible for your business and the assets which makes you liable for any loss. There are various types of insurance plans that are offered to Sole Traders, so be careful when choosing an insurance plan for your business. You can learn more about different types of insurance plans HERE and understand which plan will best suit your business needs.
Reasons to Choose Sole Trader Business Structure
- - Compared to other business structures, there’s minimum paperwork required to set up this business structure
- - Sole Trader business is quite easy and inexpensive to set up
- - There’s way less interference by the government and any legal matters
- - Easier to change the business structure at a later stage, if need be
- - This business structure is more private compared to any other business structure
- - It is completely your decision to hire employees or you are free to work alone if you wish to
- - A Sole Trader has complete control over the business and earns income and profit without having to share it with anyone
- - A Sole Trader can pay income tax at personal tax rates as the income earned by the business is treated as Sole Trader’s own money
Factors to Consider Before Operating as a Sole Trader
Choosing a business structure can be a tough decision but this is solely a business owner’s choice. This article may not decide it for but it can certainly help you make your choice. Here are some important factors you must consider and questions you must ask yourself before choosing to operate as a Sole Trader.
- - Are you certain about running your business alone? If yes, this business structure suits your needs but if you plan to hire employees who would do the work for YOU and set up a huge firm eventually, a COMPANY business structure might suit your needs better.
- - Are you comfortable with the fact that your personal assets are going to be at risk?
- - A Sole Trader is the only one responsible for the business and it may suffer in case something happens to the owner or in case of death. This situation will put your business in a difficult spot. Are you prepared for that?
Hopefully this article has given you enough information about Sole Trader business structure and will help you decide for yourself.