In Australia, the label “sole trader” can refer to multiple forms of business. It is frequently used in the small company sector; however, its use often leaves people confused as to which formal type of business structure someone is referring to. We’re here to clarify and explain some of the most prevalent forms of sole trader business structures in Australia, as well as how they operate.
What is the definition of a sole trader business in Australia?
While there are many various types of company forms across the world, one of the most basic is that of the sole trader. This sort of business is run by a single trader, who is the only individual legally liable for all of the company’s affairs and concerns.
The structure includes the owner, who is responsible for all of the company’s revenues and losses, which are reported on their personal tax return.
As the proprietor of a sole trader firm, you are also responsible for paying any of the company’s required financial responsibilities. As a result, if your company defaults on any of these responsibilities, you, as the owner, will be held personally liable.
Because of its low expenses and flexibility in structure options, operating as a sole trader is a popular and appealing alternative to alternative legal structures for many small company owners. Let’s take a closer look at these many types of sole trader business arrangements.
Sole trader business models come in a variety of shapes and sizes. There are three primary forms of sole trader business structures in Australia:
1. Owner of a small business
Being a self-employed business owner fundamentally implies that you run your company or trade for profit. Depending on the demands, restrictions, and goals of the firm, this sort of sole trader organization can be run as a full-time or part-time operation.
There is usually no contractual link between you and your customers or clients when you run a self-employed firm. In addition, there is no formal employer-employee relationship in situ.
2. Franchisee
The franchise is another typical form for a lone trader firm. The franchise model involves a sole trader (also known as a franchisee) entering a contract with a franchisor to use their company’s brand in exchange for a fee or other financial arrangement.
One of the stipulations of signing a franchise agreement is that you must follow the franchise’s defined business model, which is offered in advance. The model places you in charge of a variety of aspects of running the company, including marketing, operations, and how you want to grow it.
As a franchisee, you must pay royalties to the franchisor when operating under a franchise agreement. Every franchise is unique and has its own set of terms, but the fees charged are often a percentage of the total revenues generated by the business unit.
Many sole traders, especially those with little experience, find the franchise model appealing since the franchisor provides direction and support to help them start their firm. Due to the franchisor’s expertise in various local markets, it is also a model that can easily be expanded into foreign markets.
As a business owner, you can also consider getting insurance like business insurance, public liability insurance or sole trader insurance. These provide a layer of protection for your business.
3. Working as a freelancer
The independent contractor is the final of the three sole trader company forms. It’s similar to being a self-employed business owner, with the exception that an independent contractor works for an employer to fulfill certain tasks.
Working as an independent contractor for a firm requires you to pay your own taxes because they are not deducted from your income, and you will not be entitled to the same perks and advantages as employees.
Working as an independent contractor has the benefit of allowing you to accept or refuse jobs, giving you more choice over the sort of work you perform and the amount of work you have.
To sum it up
Small business owner, franchisee, and freelancer are the three most common forms of sole trader business arrangements you’ll find in Australia. Many small company entrepreneurs starting out on their own find this form of legal structure appealing since it is reasonably simple to set up and cost-effective over a long-term basis.
Sole traders have fewer reporting obligations and a wider range of options for offsetting business losses against other revenues than other company models. The framework is also easy to adapt or disintegrate if things change over time.
Sole traders, like any other sort of business, are susceptible to the hazards of running a business. That is why it is important that you consider insuring your company with the right level of insurance to meet your needs.
From proofreaders to plumbers, dog walkers to driving instructors, you can find an array of business insurance solutions for a multitude of professions and sectors. Insurance brokers can help you compare rates from some of Australia’s most reputable insurers and, in some cases, you can get your coverage settled within minutes online.
