Sole Trader or Company

Here are 5 factors to consider when deciding if you should set up your business as a sole trader or company.

Risk

I use the example of sole trader paramedic who runs medical tents at school boy rugby union carnivals.  What would happen if someone was seriously injured at one of these events (which has happened at similar events) and the paramedics insurance company denied full cover?

As a sole trader, the paramedic could lose their house if the parents sued them.

If:

• the business was set up as a company, there is a layer (like a brick fence) between the paramedic and the family which could help save the paramedic’s house.
• you or your partner have assets, or you are in a high risk business, you need to seriously think about operating as a company (and the cost of having a company as insurance).
• you have no assets or the risk is very low, then operating as sole trader may be the option for you.

What your Clients Want

I have seen it from time to time, that the client wants to do business with a company rather than a sole trader.  If this is the case for your clients, then you have no choice but to set up as a company.

Also for some businesses, they may see a company as much bigger than just a sole trader.

Your future funding plans

You need to understand what your future funding plans are.

If you want to look for investors for example, rarely will they invest in a sole trader.  So you must have a company

Also, sole traders are not eligible for some grant programs.  The Research and Development Tax incentive in one such example.  So if you are thinking of accessing grant programs, you may be forced to be a company.

Your Staffing plans

A sole trader can employ staff, but you can become personally liable for a whole range of issues around such.  What if they get injured in the workplace?  What if they sue for unfair dismissal?  Having staff increases risks to you and you may want to be a company to reduce this risk

Taxation

In many cases there are tax advantages from being a company as compared to a sole trader.

Not only may you be legally able to split income but also in many cases, business can deduct more expenses than a sole trader can.

Summary

In my view there is no right or wrong answer here.  Circumstances may dictate that you need to operate as a company.  Other times it will be your choice and there is nothing wrong if you start out as a sole trader and switch to a company later (for example when you are about to employ your first staff member)

If you want more information on setting up a company ASIC has some great information.  Click here to learn more

If you want help to improve your your businesses chances thriving and surviving in these uncertain times contact me below.

Contact Wayne Wanders for your FREE Discovery Session to learn how your business can scale and grow profitably

To ensure Wayne helps your business specifically, the best approach Wayne has found is to have an obligation free Discovery Session with you.  In this session we will review your current business in a factual and objective manner, to better understand the challenges that you face.

At the end of this Discovery Session, you will have multiple ideas on how your business can scale and grow profitably.

Simply fill in the contact form below or email Wayne at wayne@aRealCFO.com.au or call Wayne on 0412 227 052 to organise one of these obligation free Discovery Sessions.

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