A sole trader is an individual who sets up and runs a business. As a sole trader, you are in charge of the business and receive all of its profits and losses. Since the law does not distinguish between a sole trader as an individual versus a business, you are responsible for any debt your business accumulates. For this reason, setting up as a sole trader involves some risk, and it does not provide you with much room for your business to grow. If you do not want to set up as a sole trader, there are a few other options available to you.
A Single Company Structure
One option is to set up a company and run your business through a single company structure. Individuals, small businesses and startups will often use a single company structure to maintain complete control over their operations.
Once incorporated, a single company structure will:
- trade on behalf of the business;
- enter into business contracts with suppliers, distributors, contractors, and other third parties;
- own all the assets and assumes any liability on behalf of the business;
- own all intellectual property of the business; and
- employ the employees of the business.
What are the Benefits of This Structure?
One of the main benefits of single company structures is the limited liability that it provides to you as a shareholder and director. In a single company structure, the business is a separate legal entity, which means that your personal assets, like your family home and personal bank accounts, are protected from business liabilities. This limits your personal financial risk in case of business failure or legal issues.
The single company structure is also one of the simplest business structures. Under this structure, you are only required to:
- set up one company;
- keep records for one company;
- have one set of accounts; and
- submit one Business Activity Statement.
This also means a single company structure is relatively inexpensive to set up and maintain.
Single company structures also allow you to maintain greater control. As the owner/operator of the business, you will maintain complete control over all aspects of the business, including its operations, financial management, and strategic direction. This allows for quicker decision-making and greater flexibility in adapting to market changes.
Continue reading this article below the formWhat are the Disadvantages of This Structure?
While there are several benefits of a single company structure, there are also some disadvantages to consider, including business asset protection and tax benefits.
Business asset protection is limited in a single company structure as the single structure holds all assets and intellectual property in the same entity that engages in business. This means that if anything were to go wrong in the business, all of the company’s assets may be at risk.
Additionally, a single company structure’s asset protection capabilities do not scale and grow well with the business. This is because, as the business grows, the company is more likely to have more assets under its name. If anything goes wrong in the business, all those assets may be at risk. As such, if significant growth does occur, then the business may need to restructure. Depending on how you restructure the business, this may mean you will need to pay additional tax as a shareholder to give effect to the restructure.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
A single company structure is simple to set up and allows you to operate a business whilst limiting your liability. This means that, unless special circumstances arise, you will not be personally liable for the debts and losses of the company. However, there are some disadvantages in relation to the lack of asset protection, which you can address by using a dual company structure. We will discuss this dual company structure in Part 2 of this series.
For more information on alternative business options for you, besides being a sole trader, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A sole trader is an individual who sets up and runs a business. As a sole trader, you are in charge of the business and receive all of its profits and losses. This might not be ideal if you want to grow your business and take on more risk. As such, you might want to explore other business options besides a sole trader structure.
A single company structure is a legal entity that can conduct business, enter into contracts, borrow money, sue or be sued in its own name.
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