Bulletin Series: Structuring For Small Business Part 2 – Sole Trader

June 19, 2018

Do you want to go Solo in your small business?
Setting up your business as a sole trader is the simplest of the types of structures available to you. A sole trader is an individual operating as the sole owner and person legally responsible for the business.

Setting up your business structure as a sole trader requires little or no formal documentation, other than registration of a business name and tax registrations (ABN, TFN, GST) and a separate bank account.

Some important aspects for you to consider in relation to operating a business as a sole trader are:

Control
You are in complete control of the business.

You must make sure you have a properly drafted will and enduring power of attorney to effectively pass control of the business to the right person if you were to die or lose capacity.

There may be income tax, capital gains tax and stamp duty implications in introducing a family member or other business partner into the business.

Taxation
You must report business income in your personal tax return. There is no flexibility for you to distribute business income to other members of your family who might be in a better position to manage the tax payable on that income.
You have no ability to limit your personal tax rate to the corporate tax rate.

Costs
A sole trader structure is relatively simple to run (in comparison to other potential structures). There are little start-up costs for the sole trader structure and minimal annual administrative and accountancy fees.

Risk
As a sole trader, you are personally liable for all debts of the business and the ability to raise business capital. Therefore, if your business incurs a debt, you will be personally responsible for this debt.  Similarly, if a claim is made against your business you will be personally liable for that claim.  This might result in the loss of your personal assets.

To find out ways to mitigate the risk to your personal assets and options for you to distribute business income to other family members who might be in better position to manage the tax on that income, continue reading our Company and Trust structures publications.

To find out more about being a sole trader, please contact our commercial team on 07 4671 6000.

In our next bulletin we will discuss about Partnership in a small business.

To review Part 1 of this bulletin series, click here – Overview of Different Structure Types