Self-employment is becoming increasingly common, particularly for women trying to manage the ever-present struggle to balance career and family life.
From professionals launching freelance careers based on their current expertise, to small businesses launched from a creative concept, running your own race is a more realistic option these days, thanks to the internet and an influx of user-friendly and affordable online management systems.
When it comes to commencing self-employment there are two ways to go about it – become a sole trader or set up a company.
If you operate your business as a sole trader, you are trading in your own name, meaning you are personally legally responsible for all aspects of the business.
You’ll need to apply for an Australian Business Number which is cost-free and submit quarterly Business Activity Statements, which will determine GST and Income Tax owed to the Australian Tax Office.
A company is an independent legal entity from that is able to do business in its own right, meaning that it is the company that is legally responsible for the business.
There will be additional costs to set up the company structure and different administrative requirements, such as the company paying you a wage or salary.
“The main reason to consider a company structure if you’re a solo operator is asset protection,” says Kane Munro, Director of Accountancy Online
“That’s because if you’re operating as a sole trader and your business fails then all of your personal assets are at risk.
That means your house, your car, bank accounts are all at risk if your business fails.”
Operating a company gives you much more protection of personal assets, but this protection comes at a cost both in terms of money and administration time.
But if your role exposes you to liabilities, then setting up a company is a worthwhile investment of time and money.
If you’re planning on remaining debt free, then keeping things simple by setting yourself up as a sole trader is the way to go.
“If you’re operating your business in a fundamentally safe industry then operating as a sole trader with great insurance, a good business plan and with no debt is a prudent way to undertake your business until you’re bigger or start employing staff.”