What to Consider When Deciding on a Business Structure - a Company or Sole Trader?

Your business structure is the first and maybe most important decision you need to make when starting a business. This decision will define not only how you operate your business on a day to day basis, but also how much of your personal assets belong to it.

In this short article, we are looking at sole trader and company structures. First of all, we need to establish one thing – there is no right or wrong business structure. No one is better than the other – each business structure fits different business models and organisations.

Sole Trader

Sole trader is a business structure that is preferred by freelancers, consultants, and individual service providers (such as plumbers and accountants) where no big investment is needed and the person equals the business most of the time. A sole trader is a structure that is often fit for lifetime businesses and careers and is focused and dependent on the owner 100%.

Company

A Company is a business structure for organisations that start with growth in mind, and most of the times, needs riskier investments, loans and partners. A company is separate from its owner and is suitable for serial entrepreneurs. A company is independent and is a structure that is more focused on the idea and product than the owner.

Legally, the two are quite different from both set up and management perspective.

Apart from the goal of the business, here are some things you should consider when choosing between sole trader and a company:

1. Needs big investment like a business loan for your enterprise

Company: YES 

Sole trader: NO 

2. Personal assets separate from business assets

Company: YES 

Sole trader: NO

3. Paying yourself a salary

Company: YES

Sole trader: NO (because everything the company earns and own is yours anyway)

4. Full control of your company

Company: NO

Sole trader: Yes

5. Sets up quickly and easily without making big investments

Company: No

Sole trader: Yes

6. 100% liable for the business legally

Company: NO

Sole Trader: Yes

7. Hire staff

It really doesn’t matter, both business structures can hire.

8. Only pay tax after you profit and have a period of no taxation

Company: No

Sole trader: Yes

9. Ready to pay your own super

Company: No

Sole trader: Yes

10. Operates globally and find partners easily

Company: Yes

Sole trader: No

11.  List the business as public one day

Company: YES 

Sole trader: NO 

12. Sell the business or look for additional investors in the future

Company: YES 

Sole trader: No

13. Profits taxed as personal income

Company: No

Sole Trader: Yes

These are the main decision points that you need to consider when choosing between sole trader and a company for your business structure. If you are still not sure which one is right for your business model, consult an experienced business lawyer.

However, if you are not sure where you want to go with your new business you can always start as a sole trader and set up a company at a later stage when you have a more clear idea of the business’ future. 


Katherine Hawes

Director of Education and Training at Digital Age Lawyers (formerly New Age Legal Solutions)

I am the founder of New Age Legal Solutions and Aquarius Education. This is a different type of law firm as we believe everyone should have access to quality legal services with no hidden costs or expensive 'charging by the minute' for a reassuring chat. Small Business Owner? Find out more about our Small Business Packages to gain access to legal expertise on a routine basis for a fixed affordable rate.


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