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6. What are the differences between operating as a sole trader and as a Pty Ltd company?
 
One advantage of operating an unincorporated business as a sole trader may be that you have total autonomy over decision making. You alone make the rules about how your business will be managed, so long as you operate within taxation and general fair trading laws.

If you choose to incorporate your business -- run it as a company -- the Corporations Act puts some parameters in place about how your business must be governed, with most decision-making power given to the company's directors and some authority also vested in the company's shareholders.

Running your business as a company may mean giving up some decision-making autonomy, but it also gives you certain protections that are not available to sole traders. Once you register a company, you become a director and/or shareholder. Immediately that means that your liability for the losses of the company is limited.

As a sole trader, you are always personally liable for the full extent of any debts carried by your business. If you wished to take out a business loan, for example, most lenders would require you to offer personal assets, even your family home, as security for any finance provided to your business.

If you register a private company limited by shares -- a Proprietary Limited (Pty Ltd) Company -- your liability as a shareholder will be limited to any outstanding value owing on shares.

As a director of a Proprietary Limited company, your liability is more extensive but still not as extensive as if you were trading as a sole trader, without the protection of a company structure. For example, so long as you fulfil your responsibility as a director to ensure the company is solvent and able to pay its bills as they fall due, your liability is limited.

If the company wishes to borrow money to expand its operations at some stage, directors may be called upon to offer personal guarantees. In this way you can still put your own assets at risk but, in terms of general day to day operations, a company does provide its operators with more protection than a sole trader structure.

A company also has the status of a separate legal entity, which means if a key member of the business' personnel passes away, for instance, the business does not cease to be. This is not the case with an individual trading as a sole trader. The business will need to be would up as part of their personal estate.

If you are on a high personal tax bracket, forming a company may also have considerable tax advantages as companies are taxed at a lower rate to high-income earning individuals








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