A sole proprietorship is the most common business structure in Australia, being relatively easy to set up, operate and terminate. To help you better understand this business structure, this article will explain the sole proprietorship structure.
Features of a Sole Proprietorship
A sole proprietorship, also commonly referred to as a sole trader, is one type of business structure. Sole proprietorships are Australia’s most common business entity, with many tradespeople operating their business as a sole proprietorship.
As a sole proprietor, you are likewise solely responsible for owning and managing your business. This includes being legally responsible for all aspects of your business, including its debts and losses.
Additionally, some key features of sole proprietorship distinguish it from other types of business structures. Importantly, you should note that the sole trader has:
- total power over the business and its assets;
- their personal finances linked to the business’ finance; and
- fewer setup costs.
Therefore, if you want a simple and inexpensive business structure, a sole proprietorship may be a good option for you.
Pros and Cons of a Sole Proprietorship
When deciding if a sole proprietorship is suitable for your business needs, you should weigh up the advantages and disadvantages.
Some major advantages of a sole proprietorship include that it:
- is relatively easy to set up and terminate;
- is easy to control;
- has minimal reporting obligations; and
- has a simple tax structure.
On the other hand, some disadvantages of a sole proprietorship include that it:
- comes with unlimited liability, meaning you as the sole proprietor are personally responsible for any debt or negligence;
- is difficult to transfer ownership after death; and
- may incur difficulties with raising funds.
How to Register as a Sole Proprietor
To become a sole proprietor in Australia, you will need to:
- apply for an Australian business number (ABN); and
- register your business name.
Firstly, to apply for an ABN, you will need to fill out a form and apply to the Australian Business Register (ABR), which can be completed online.
Unless you intend to trade under your given name, you will also need to register your business name. This can be done with the Australian Securities and Investments Commission (ASIC). In addition, you will need to link your ABN and business name by contacting the Australian Taxation Office (ATO).
Licences and Permits
After obtaining an ABN and registering your business name, you will need to apply for your business’s relevant licences and permits. For example, suppose your sole proprietorship is a food van in Melbourne. Hence, you might need a licence to hold or transport food. Additionally, you may also require a permit to place furniture in a public place and a permit to place signs.
The licences and permits your sole proprietorship needs may differ from state to state. Indeed, the Australian Business Licence and Information Service (ABLIS) is a good place to begin your search.
Responsibilities
As a sole proprietor, it is important to consider that you are responsible for a range of miscellaneous business activities. This includes organising your own superannuation payments.
Further, if you employ staff, you will be responsible for paying your employees’ wages and superannuation payments, as well as reporting these to the relevant authorities.
Finally, you will be responsible for obtaining the right insurance for your sole proprietorship. As a sole proprietor, you will be responsible for all debts and liabilities for your business. These are also linked with your personal finances, which has risks. Insurance can help protect both you and your business.
Key Takeaways
If you are looking for a relatively simple and convenient business structure, a sole proprietorship might be a suitable option for you. However, some things to consider before deciding to set up a sole proprietorship include the:
- features of a sole proprietorship;
- pros and cons of a sole proprietorship;
- registration requirements;
- licences and permits required; and
- responsibilities as a sole proprietor.
If you need assistance deciding if a sole proprietorship is suitable for you, our experienced lawyers can help. You can contact LegalVision’s business lawyers on 1300 544 755 or by filling out the form on this page.
Frequently Asked Questions
A sole proprietorship, or a sole trader, refers to a business that is owned by an individual. A sole proprietorship means the business itself and the owner are considered one single entity, making the sole proprietor responsible for all of the business’ losses.
A sole proprietorship is one type of business structure. Some key things to note about sole proprietorships are that the sole trader has total power over the business and its assets. Likewise, the business finances are linked to the sole proprietors’ proprietor finances. Further, the overall setup and management of a sole proprietorship is simple and inexpensive.
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