Sole trader

What is a sole trader?

How does a company structure differ from a sole trader?

A company:

• has a separate legal existence distinct from its owners
• has its own property, rights and obligations (a company’s assets belong to the company and must be used for the company’s purposes)
• has the powers of an individual
• has limited liability, that is the shareholders of a company are not prima facie liable for the company’s debts
• is generally the best structure for the growth of a business, as well as the full or partial transfer of the business.

A sole trader structure may not be as appropriate a vehicle for a growing business. A sole trader cannot take on equity investors or have stakeholders move in and out of the business with the ease and lower costs that a company can.

If you believe that your business will require third party equity investment at some time in the future, you should perhaps consider changing to a company structure sooner rather than later. You can learn more about companies here and we can provide you with advice and assistance in this regard. 

As a sole trader, are my personal assets protected against bankruptcy?

As a sole trader, it is vital that you give consideration to the protection of your assets against the effects of legal action and, ultimately, bankruptcy. This cannot be left to the time that you are in trouble, because by then it will almost certainly be too late. You should put the protective structures and arrangements, such as a discretionary trust, in place now. 

This may also be less costly now than it might be later, particularly if your business is likely to grow. You can read more about Trusts here and contact us for advice in this regard.