Of all the different business structures available in Australia, setting up as a sole trader is the easiest and least expensive. These are two important reasons why many small businesses in Australia operate as sole traders. However, there are some legal formalities to satisfy when setting up which we step you through below.
What is a Sole Trader?
A sole trader is a person who conducts their business independently. From a legal perspective, the business and the individual are one and the same. The sole trader is therefore not a separate legal entity. The sole trader owns the business and wholly controls it. They benefit from its profits and are responsible for all its liabilities.
Setting up as a sole trader is relatively straightforward. To do so, a person will need the following documents.
1. Business Name
All sole traders have the right to trade under their name. If they do so, they do not need to register that name with any government department.
However, a sole trader also has the right to trade under a name other than their own. In that case, they need to register their business name under the Business Names Registration Act 2011 (Cth). The Australian Securities and Investment Commission (ASIC) is responsible for registering and renewing business names. A sole trader can register their name online and will need to pay the prescribed fee.
If a sole trader chooses to use a business name, they must undertake certain tasks before registration. First, a person needs an Australian Business Number (ABN) before they can register their chosen name. They can also be in the process of getting an ABN. Second, they need to check that their preferred name is available. The ASIC website provides an online business name availability search.
All sole traders must be aware that registering their business name does not give them ownership of that name. It does not legally protect the name or permit a sole trader to prevent another person from using that name or another name similar to it. A business must register their name as a trade mark with IP Australia in the appropriate class or classes. If they also have a logo or domain name that they also wish to protect, they need to register these as a trade mark as well.
2. Australian Business Number
An Australian Business Number is a unique eleven-digit number that identifies a business and can make interacting with different government departments easier. Some businesses are obliged to have an ABN. For example, if they need to register to pay Goods and Services Tax or want to register a business name.
As a sole trader, it is nonetheless a good idea to have an ABN even if you do not need one. An ABN confirms your business identity to other businesses you interact with on a commercial level. You also require an ABN to register an Australian domain name.
3. Other Taxation Registrations
Depending on the size of the business, you may need to register for various other taxation requirements. A business that meets the Goods and Services Tax threshold must register for GST. Even if it does not meet the threshold, if it intends to claim fuel tax credits or provide taxi travel it must register for GST. Similarly, if the business has employees, it must register for PAYG Withholding.
As a sole trader, the Tax File Number of the business is the same as the person who operates the business. If they do not have a TFN, they must apply for one online.
Your business may also require particular licences. For example, local government development approval for your business premises. The onus is on a business to have all the correct permits. On this point, the Australian Business Licence and Information Service can be an excellent online resource.
If you have any questions about setting up your business or drafting the required documents, get in touch with our business structure experts on 1300 544 755.