Sole Trader vs Company?

business-strategyExcited about starting your own business, but not sure what structure your business should be? Is it worth considering what structure will be best for you? How do you want to be perceived by your clients? Consider the following to determine what is best for your situation.

There are advantages for both structures so consider your own unique situation before making your decision.

1. Liability

Sole Trader

Company

 Unlimited Liability: Loans and business expenses usually secured by personal assets  Limited Liability: Limited liability for funds within the compan

 

2.  Decision Making

Sole Trader

Company

No requirement to consider other director’s or shareholders. Sole decision maker

The majority of decisions will be made on behalf of the company by the director/s and in some instances by the shareholders according to the Corporations Act (2001)

 3. Start up Capital and Costs

Sole Trader

Company

Sole Trader structures don’t allow for shares of if you need to raise capital you will need to get a loan

Companies can receive capital from outside parties offering them shares for investment

 4. Succession Planning

Sole Trader

Company

A business cannot be transferred or passed on if a sole trader should die. Assets are dealt with through the person’s estate

A company is a separate legal entity and therefore can survive despite the death of a director. They have the benefit of perpetual succession

 5. Retained Profits

Sole Trader

Company

Profits are income and will be taxed at the personal marginal rate

A company has the option to distribute profits to shareholders or keep them and use them to grow the company

 6. Tax

Sole Trader

Company

Tax losses from one source of can be deducted from assessable income from another source. Tax losses can be carried forward

Tax losses can be carried forward to future years, indefinitely. If a company runs more than one business it can offset tax losses to sources of income in other businesses

 7. Registration and Fees

Sole Trader

Company

There is no registration or ongoing maintenance fees apart from business licensing fees which are generally lower than company fees

There are registration fees payable

 This information is of general nature only and doesn’t constitute professional advice. You must seek professional advice before making a decision on which structure is best for you.

Once you have your business structure decided upon, are you ready to take the leap to work with me in building your business and managing your finances so you can spend your time in doing what you love?

Call me on 0402 819 611 or email lynne@uneedmeaccounting.com.au.

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