A sole proprietor or ‘sole trader’ is an individual who carries on a business as themselves as a legal individual rather than as a separate legal entity. The person and the business are considered one and the same for all taxation and legal purposes.

When starting your own business it is important to choose a structure that will meet your personal and commercial needs both now and into the future. Your choice of structure can have quite different legal and taxation consequences for your business and personal assets. There are also considerations such as control over the day-to-day affairs and management of your business.

Operating your business as a sole trader is usually the simplest business structure. There are a number of benefits from operating as a sole trader including:

• you have ultimate control over the day to day decisions affecting your business;
• your business income forms part of your individual income for tax purposes which allows you to offset losses;
• you will not be subject to a high level of regulation due to your choice of business structure; and
• both the establishment and ongoing costs are minimal.

However this structure provides fewer of the incentives that often appeal to individuals wanting to set up a business. As a sole trader you are:

• subject to unlimited personal liability if your business operations create a debt or a wrong is committed;

• unable to split income between family members for tax minimisation purposes; and
• subject to a potentially higher individual tax rate as the profits of your business are your own personal income for tax purposes.

Whether these disadvantages are of concern to you will depend on your particular business enterprise. Not every business will be affected in the same way. It is important that you engage a lawyer to help you understand the many complex consequences that can flow from your choice of business structure.

This Legal Guide on Sole Traders provides small to medium business owners with information about setting up as a sole trader. Before making important decisions it is advisable to obtain legal advice specific to your situation. LegalEagle’s™ free directory profiles all lawyers in Australia. You can use it to Find a Lawyer near you.

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Warning: Information provided through LegalEagle™ is for general guidance. It is not legal advice. Laws and procedures referred to may change and differ between states, territories and nationally. There may also be important exceptions or qualifications. Only a lawyer providing formal legal advice can assess your particular circumstances to determine how the law will apply.