Choosing the right business structure, for you
To be a company, a sole trader, or something else - it can feel like an overwhelming decision and it’s one that isn’t always clear cut! Here are some of the pros and cons of the different structures you can choose from for trading your business.
The most common business structures are:
Sole Trader: Individual running their business and trading under their own name
Partnership: Two individuals or more, running their business together
Company: shareholders own the company, which is its own legal entity
Sole Trader / Partnership
Advantages
It’s easy to get started - you can just begin trading, use personal bank accounts (preferably separate ones for the business) and just begin!
Disadvantages
You have no legal protection. Anything your business does, you are personally liable for. When engaging with third parties (such as lenders, suppliers, customers or employees), you do so in your own name - so anything else you own could be collateral in any adverse situation.
Company
Advantages
Flexibility with tax planning and tax minimisation (when you earn more than $70,000 per year)
Limited liability - what this means is as a director and shareholder of your company, you are not personally liable for anything the company does (except where personal guarantees are signed). If the company went into debt or was sued, company owners are not personably liable.
Disadvantages
Costs involved to incorporate a company, and wind it up when your business ceases
Costs and additional admin compliance to maintain your company annually (although we cover this for all Prosper clients!)
Starting your business and not sure what the right structure is for you?
Check out the Governments business structure selector tool to work out what is right for you!
Disclaimer: this is general information only. Please reach out to Prosper Business for specific advice to your situation.