Question: What are the advantages and disadvantages of operating as a sole trader?Answer:
A sole trader is someone who operates a business as an individual. This is a great structure for small businesses and new business owners as it is easy and inexpensive to set up and register, there is little legislative regulation and administrative burdens; you work for yourself and can make all the decisions for the business.
The disadvantages are that there is very little flexibility when it comes to income distribution and tax benefits – the profits from a sole trader business are taxed as personal income, so the more you earn through the business the more tax you will have to pay. In comparison, companies are taxed at a flat rate of 30%. Sole traders also have no protection from liability, and personal assets such as property are considered assets of the business and can be used to secure debts with creditors and investors. Also, if a sole trader dies or is unable to continue operating the business, the business is dissolved.