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Your business in Australia. Sole trader or company?

Sole traders and companies have different legal, tax and reporting obligations.

SOLE TRADERS in Australia

ST is the simplest form of business structure and is relatively easy and inexpensive to set up.

As a ST you’re legally responsible for all aspects of your business including any debts and losses and day-to-day business decisions.

The business structure of an ST requires fewer reporting requirements and is generally a low-cost structure. It is simple to set up and operate, doesn’t require a separate business bank account. Following this structure, ST has unlimited liability, and if something goes wrong, if is all your personal assets are at risk. You personally liable to pay tax on all the income derived.

You can employ people to help run your business under the sole trader business structure. If you do decide to take on any employees there are obligations you must comply with such workers insurance and superannuation contributions.

COMPANY in Australia

Creating a COMPANY, you create a separate legal entity from you, this is a more complex business structure to set up and operate.

Companies are expensive and difficult structure, and generally suit people who expect their business income to be highly variable, and want the option to use losses to offset future profits.

The members of the company have limited liability, and the money that the business makes belongs to the company. The company must lodge an annual tax return, directors are required to complete a declaration of solvency each year

Your company must register for Goods and Services Tax (GST, 10%) if turnover is 75,000+ AUD. The registration threshold for non-profit organisations is $150,000.

To help you decide which business structure is right for you, we’ve compared the costs, liability requirements and reporting obligations for both sole traders and companies.

SOLE TRADER:

  • obtaining an Australian business number (ABN) – free
  • registering a business name – $37 for 1 year or $88 for 3 years
  • establishing separate business bank accounts – fees

COMPANY:

  • obtaining an Australian business number (ABN) – free
  • choosing and reserving a company name – from $52
  • registering your company – $512
  • registering a business name – $37 for 1 year or $88 for 3 years
  • establishing separate business bank accounts – fees may apply

SOLE TRADER:

  • Business income and expenses go into your individual tax return
  • Keep your financial records, including tax returns, for 5

COMPANY:

  • Lodge their own tax returns
  • Keep tax records for at least 5, and financial records for at least 7 years
  • Record and explain transactions and financial position and performance
  • Annual reviewed by the Australian Securities and Investments Commission (ASIC)

SOLE TRADER:

  • Business income is your individual income
  • Personal tax responsibilities
  • You can claim deductions for costs incurred in running a business
  • You can withdraw money from a business bank account

COMPANY:

  • Earned money belongs to the company
  • A separate business bank account
  • Directors’ fees or wages must be shown on individual tax return

SOLE TRADER:

  • Personally liable for financial or tax debts
  • No division between business and personal assets
  • You pay business debts

 

COMPANY:

  • The company is generally liable for all business debts
  • Personal assets can also be at risk
  • The company may sell these assets to help pay its debts

SOLE TRADER:

  • Business activities will determine the type of insurance
  • Workers’ compensation insurance is required


COMPANY:

  • Business activities will determine the type of insurance
  • Workers’ compensation insurance is required
  • Directors’ and officers’ liability insurance may be considered
  • The company is liable for the debt of a WorkCover claim

SOLE TRADER:

  • You will have full control over your business
  • you are personally liable and responsible for all aspects of running the business

COMPANY:

  • Certain decisions must still be recorded as resolutions of the company
  • All directors govern the internal management of the company and in line with certain rules

SOLE TRADER:

  • The cost of a business name registration is $37 for 1 year or $88 for 3 years

COMPANY:

  • Different fees may apply depending on business operations.
  • An Annual ASIC review fee has to be paid to keep your entity registered

SOLE TRADER:

  • You need to cancel your ABN and cancel your business name within 28 days of ceasing trading

 

COMPANY:

  • Closing a company is more complex than just ceasing trading.
  • A company needs to be formally deregistered so that it ceases to exist as a legal entity

Both sole trader and company business structures can employ staff. You will need to provide workers’ compensation insurance, understand your tax and superannuation obligations, understand your employees’ entitlements.

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