Advantages And Disadvantages Of A Business Entity

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Advantages of a Sole Trader

Back 1

Simple set up and during operation.
You retain complete control of your assets and business decisions.
Fewer reporting requirements.
Any losses incurred by your business activities, may be offset against other income earned (such as your investment income or wages). Subject to certain conditions.
You are not considered an employee of your own business and are free of any obligation to pay payroll tax, superannuation contributions or workers' compensation on income your draw from the business.
Relatively easy to change your legal structure if the business grows, or if you wish to wind things up.

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Disadvantages of a Sole Trader

Back 2

Unlimited liability which means all your personal assets are at risk if things go wrong.
Little opportunity for tax planning - you can't split business profits or losses made with family members and you are personally liable to pay tax on all the income derived.

Front 3

Advantages of a Partnership

Back 3

Simple and inexpensive to set up.
Minimal reporting requirements.
Shared management/staffing responsibilities.
More opportunities for tax planning (such as income splitting between family members) than that of a sole trader.
A partner's share of the business's tax losses may be offset against other personal income, subject to certain conditions.
Combined skills, experience and knowledge can provide a better product/service.
Relatively easy to dissolve or exit and recover your share.
Access to capital.
Partners are not employees. Superannuation contributions and workers' compensation insurance are not payable on partners profits or drawings.

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Disadvantages of a Partnership

Back 4

Potential for disputes over profit sharing, administrative control and business direction.
Joint and several liability of partners. This means that each partner is fully responsible for debts and liabilities incurred by other partners - with or without their knowledge.
Changes of ownership can be difficult and generally require a new partnership to be established.

Front 5

Advantages of a Private Company

Back 5

Limited liability for shareholders/owners.
Company structure is commercially well understood and accepted.
Ability to raise significant capital.
Profits can be reinvested in the company or paid out to the shareholders as dividends.
Easy to sell and pass on ownership.
Company can carry forward losses indefinitely to offset against future profits.

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Disadvantages of a Private Company

Back 6

Significant set-up costs and maintenance costs.
Limited or no control of company affairs.
Complex reporting requirements.
Company can't distribute losses to its shareholders.