Should You Be a Sole Trader or a Company?
When setting up your new business there are a lot of things you need to think about. One of which is, do you go it alone or reach out for support?
Will you be a sole trader; a business is owned by one single person.
Or will you be a company; a business with several shareholders who each own a percentage.
Both approaches have their own pros and cons, so read on to find out which is right for you.
The pros being a sole trader
If you are working with limited resources, there are far fewer things to think about. There is far less paperwork and far fewer costs. Many will choose to purchase an ABN and a registered business name but that’s about it. As far as taxes go, a sole trader will only pay their personal income taxes.
Additionally, if you want to have full control over your business then you should know a sole trader is a single person that will have 100% ownership and control over their business. This means they don’t have to answer to any shareholders
In short, some of the top reasons for being a sole trader is because it is simpler to set up, there are fewer costs, and you will have total control.
The cons of being a sole trader
Of course, there are downsides to this business model. As a sole trader you are in it alone, you do not have shareholders to shoulder the burden or to invest money in the business. Being a sole trader means that you will be solely responsible for your business and its debts. You will be paying bankroll, rent, legal fees, fines and buying anything your business needs. Any legal trouble your company lands in, you will be the one in the hot seat.
So, the cons of being a sole trader is sole responsibility for any financial or legal troubles the business has as you will have no other shareholders.
The pros of being a company
On the other hand, you could choose to set up a company. Owning a company means that you will be able to bring investors on board to become shareholders within your business. These shareholders will buy a percentage of the business, meaning that you will have a lot more money to work with during the first stages of your company.
Additionally, you won’t be shouldering the burden of responsibility alone. You will have several others to weigh in decisions with you and split the liability of debts incurred or any other problems the business has.
The pros of a company are more initial capital and limited liability.
The cons of being a company
No one has sole control over a company. Major decisions the CEO makes must be agreed upon by their shareholders. Additionally, the business’s profits will be split between shareholders depending on the percentage of the company they own.
There are also a variety of fees that need to be considered when starting a company. In Australia you must register your company with the Australian Securities and Investments Commission which currently costs $538 initially and $230 annually to renew.
Additionally, companies are taxed at a corporate rate of 30% compared to a sole trader, who needs only to pay personal taxes.
The cons of a company is that it costs more to run and that you will not have sole agency, nor take all profits as shareholders will own a percentage of the company.
In Summary
As with everything, there are pros and cons to both. You know your needs better than anyone and hopefully knowing the differences between the two can let you decide your approach.
Starting your own business? Get help from a professional.
Book a free 45-min consultation today.
