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.

How do I choose between a sole trader and company business structure?

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.

What is a sole trader business structure? 

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%.

What is a company business structure? 

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.

What are the key things to consider when choosing a business structure?

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

1. Do you need big investment like a business loan for your enterprise?

Company: YES 

Sole trader: NO 

2. Do you want your personal assets to be separate from your business assets?

Company: YES 

Sole trader: NO

3. Do you want to pay yourself a salary?

Company: YES

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

4. Do you want full control of your company?

Company: NO

Sole trader: Yes

5. Do you want to set 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.