Advantages And Disadvantages Of Sole Trader

Register to read the introduction… Each has advantages and disadvantages, depending on various circumstances. Running a new business as a sole trader is the easiest approach, since getting started costs very little and is simple. The sole trader does not pay separate income tax and is not subject to company regulation such as the Corporations Act (Birt, Chalmers, Byrne, Brooks & Oliver, 2012). Also, the owner can retain full control, have rights to make decisions and get all the profits, if the business underperforms, he can offset losses against other income. However, the individual has unlimited liability since it is not a separate legal entity. That is to say, the owner is personally responsible for all the debts incurred by the business. If it goes bad, he may be forced to sell other assets and the personal assets could be at risk. The tax disadvantage is that a person may be liable to pay income tax up to the top marginal tax rate (Pendieton & Vickery, 2005). Moreover, this form is limited by skill, time and investment of the individual owner (Harris, Hargovan & Adams, …show more content…
The partners will share the profits, losses and risks based on the ownership structures described in the partnership agreement (Birt et al., 2012). The use of partnerships and its attractions can be attributed to several reasons. First and foremost, as is the case with sole trader, partnership is easy to set up with minimal costs and resources. Individuals are not required to prepare additional paperwork to form an ordinary partnership (Harris, Hargovan & Adams, 2009). However, they must fulfill the same registration requirements as other new business. Meanwhile, as with sole traders, although many partnerships use MYOB or QuickBooks to assist in report preparation, there are no formal requirements for partnership financial statements on the basis of accounting standards (Birt et al., 2012). In other words, there is not bound by accounting standards and it is easy to create without many formalities due to lighter government regulation compared to …show more content…
To begin with, the basic registration requirements consists of applying for and Australian Business Number (ABN), which is an identifying number for dealing with the ATO and other government departments (Birt et al., 2012). Similarly, the partnership business need to register a unique number to increase the efficiency in administering tax called tax file number (TFN). The next step is that Christina and David need to elect to use a business name C&D tax agents for trading purpose. The business name is administered by the Australian Securities and Investments Commission (ASIC). This information is held in a public registry under the state or territory Business Name Registration Act 2011 (Harris, Hargovan & Adams, 2009). It details the identities of persons conducting the business and is useful for creditors. By accessing the information, creditors can ascertain who is operating the