Looking at the range of available entities that a person can choose from when structuring a business. It’s crucial to choose carefully as different structures carry with them different legal, reporting, maintenance and tax consequences. Ultimately, you want to choose a structure that is going to accommodate your business needs and provide you with the upmost:

  • flexibility,
  • asset protection,
  • cost minimisation,
  • the effective and efficient flow and distribution of profits, and
  • security.

One form of structure that is available to you is known as a sole proprietorship. You may have heard someone refer to himself or herself as a sole proprietor. But what does this mean? Put simply, a sole proprietor or a sole proprietorship business structure, comes into being when a natural person (you or I) goes into business for themselves. That is, they are the business and the business is them.

Advantages of a Sole Proprietorship Business Structure

Under a sole proprietorship you will enjoy several benefits.

  1. It is relatively simple and easy to both setup and terminate a sole proprietorship. A person needs only to register for an Australian Business Number (and even this is optional), apply for an Australian Tax File Number and register a business name. That’s it you’re now good to go.
  2. Sole proprietorships are relatively easy to control. You as the proprietor make up the business and thus you need only to control your own actions. The business being a natural extension of your everyday activities.
  3. Unlike with other entities (i.e. incorporated companies), under a sole proprietorship structure there are minimal reporting obligations.
  4. Tax is a breeze as you will be taxed at the individual or personal level. In fact the major benefit of this type of structure is that you can use the tax losses you generate under the sole proprietorship to offset your other income. This is referred to as the process of negative gearing.

Disadvantages of a Sole Proprietorship Business Structure

Alas, with any course of action there are always positives and negatives. Unfortunately, a sole proprietorship structure is no different. Several negative aspects of this particular model need to be considered.

  1. The major pitfall of a sole proprietorship is that it carries with it unlimited liability. This means that you as the proprietor will be personally liable for any debts or negligence that occur during the life of the proprietorship.
  2. Because a sole proprietorship is not regarded as a separate legal entity and operates at the personal level. Should you pass away the proprietorship will come to an end. The result of this is that any goodwill or other intangible assets will be lost.

Conclusion

Unsure whether a sole proprietorship is right for you? Call our friendly staff of LegalVision lawyers today to not only learn more about this type of structure but the other forms of entities available to you. Our lawyers would be more than happy to assist you with any queries that you may have.

 

Vanja Simic

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