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Sole proprietorships are the most common business entity in Australia. Sole proprietorships are popular due to them being relatively simple to register, operate and dissolve. To determine whether this business structure is right for you, this article will take you through five key features of a sole proprietorship.

1. Simplicity 

Sole proprietorships are the simplest business structure. Consequently, it is the most common type of business entity in Australia. Sole proprietorships are simple in their setup, management and dissolution. To register a sole proprietorship, you only need to register:

Similarly, taxation for a sole proprietorship is simple. Since sole proprietors are not a separate business entity, they do not need to file a business tax return. Instead, business income is taxed alongside the sole proprietor’s personal income. Therefore, being a sole trader may even provide you with access to small business tax concessions that are in place to promote business growth. 

2. Sole Ownership

Another key feature of a sole proprietorship is that you get to be your own boss. While a sole proprietor might have multiple employees, there is only one owner. This means that a sole proprietor has complete control over the business management and operations. The sole proprietor has the responsibility and authority to make and implement all decisions, preventing any ownership disputes that might arise under different company structures with more than one owner.

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3. Unlimited Liability

Another key feature of a sole proprietorship is that it carries unlimited liability. Unlimited liability means that the sole proprietor is personally liable for the business’ debts and liabilities. Importantly, the business is not a separate entity. Instead, the sole proprietor and the business are one and the same. As a result, unlimited liability is often considered a major downfall of the sole proprietorship business structure. 

In other business types, such as companies, company directors will be considered separate from the company itself. In most cases, this will protect their personal assets. If a sole proprietor incurs debts, this risks the sole proprietor’s personal assets. This might include their personal property and savings. 

4. Profit

Another key feature of a sole proprietorship is that it does not have to share its profits. While the sole trader will, of course, have to pay any employee wages and super contributions, the business profit does not need to be shared. This means that the sole proprietor can put more money back into the business operations or instead choose to draw a higher salary. With the sole proprietor being responsible for business profits, they will need to ensure they pay their own super contributions.

5. Minimal Formality

Another key feature of a sole proprietorship is that there is minimal formality. Unlike other business structures, sole proprietorships have very few reporting requirements. There are very few documents needed for registration and also very few ongoing reporting documents needed.

A sole proprietor will only need to:

  • apply for and use an ABN;
  • use your individual tax file number to file a tax return;
  • report your income and business income and expenses;
  • register to pay Goods and Services Tax (GST) if the annual GST turnover is greater than $75,000;
  • pay income tax at the end of the year;
  • claim a deduction for any personal super contributions; and
  • pay your employees’ wages and super contributions.

In the case of other business structures, there will be ongoing reporting requirements to the Australian Securities and Investments Commission (ASIC).

To dissolve a sole proprietorship is also simple. You simply need to cancel your ABN and business name within 28 days of ceasing trading. 

Key Takeaways

A sole proprietorship is the most prevalent business structure in Australia, with more than 1.5 million sole traders operating Australia-wide. Some of the key features of a sole proprietorship include:

  • simplicity in its business structure;
  • sole ownership; 
  • unlimited liability for the sole proprietor;
  • the sole proprietor not having to share profits; and
  • minimal formalities.

If you need assistance determining if a sole proprietorship is for you, LegalVision’s experienced business lawyers can help. You can contact them on 1300 544 755 or by filling out the form on this page.

Frequently Asked Questions

What is a sole proprietorship?

Sole proprietorship refers to a business owned by a single person. A sole proprietorship means that the business itself and the owner are considered one single entity. Hence, the sole proprietor is responsible for the business’ debts and losses. Similarly, sole proprietors do not need to share the business profits.

What are the key elements of a sole proprietorship?

A sole proprietorship is a simple and inexpensive business structure. Some key features of a sole proprietorship are that it is simple to set up and operate, has a sole owner who does not need to share the profits, has unlimited liability and minimal formalities.

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