Xero – Gold Partner

The Sole Trader

By | October 24, 2016

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.
  • 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.

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