What's a sole trader?
Basically it means the business decisions are being made by one person.
Of course, it doesn't necessarily mean that the business has only one worker. The sole trader can employ others to do
any or all of the work in the business.
What are the advantages?
This type of structure is ideal if the business is not complicated, especially if it does not require a great deal of
outside capital.
- There isn't much paperwork in establishing this type of structure.
- You may not have to register the business name (see above).
- There are less stringent reporting obligations compared with other structures.
- You may be able to deduct tax losses from personal income.
- You are entitled to profits and the ownership of assets.
- It's relatively straightforward to wind up.
What are the disadvantages?
- You are personally liable for all debts.
- Personal property may be vulnerable for debts and other business liabilities.
- Large sums of capital are less likely to be available to a sole trader, and you may have to rely more on overdrafts
and personal savings.
- You may require enormous investments of time without the normal employee recreation leave and other benefits.
- There may be issues of continuity of business in the event of death or illness.
Limiting liability
Talk to an accountant or lawyer about the legal ownership of personal assets or the use of trusts to limit liability.
For instance, the family home may not be exposed if it is in the name of your spouse - you must get legal advice
before you do this, because there are other consequences, especially if the spouse dies or you divorce.
Also, you may not be able to do this if your sole purpose is to avoid a creditor. Get advice.
Tax
A sole trader pays tax in their own right, as part of their personal income tax return at the personal rate of income
tax.
Read this: This fact sheet is intended to be general information about the law in
Last Updated ? April 2007
