Sole Trader

A sole trader is the simplest and most cost-effective business structure. The business is owned and operated by one individual who is legally responsible for all aspects of the business.

Example: John operates a photography business as a sole trader. He has registered an ABN under his own legal name. John personally handles all the operations, from taking photos, editing them to managing customer bookings and payments. John is solely responsible for all profits, debts, and liabilities. At the end of the financial year, John is taxed at his marginal tax rates.

Things to consider..

Operating as a sole trader comes with several important considerations. One of the main risks is unlimited liability, meaning the owner is personally responsible for all business debts and legal actions, which can put personal assets at risk. While the structure is simple and cost-effective, sole traders must consider the unlimited liability that comes with the structure. Like other entities sole traders are also required meet tax obligations such as lodging a business schedule with their individual tax return, paying PAYG instalments, registering for GST if turnover exceeds $75,000. Record-keeping is essential, with financial records required to be kept for at least five years. Unlike employees, sole traders are not required to pay themselves superannuation, though voluntary contributions are recommended for retirement planning. It is also important to consider appropriate insurances, such as public liability or income protection. Additionally, there is no legal separation between the individual and the business, which can affect continuity and limit options for succession or sale. Lastly, sole traders may face challenges accessing capital, often relying on personal funds or loans without the benefit of investors or partners.