A Sole Trader business is one of the simplest types of business concerns to run.
The Sole Trader i.e. you, a single person (a one-man/one woman business) is a frequently used business model.
A Sole Trader business structure is one where the business i.e. the owner operates either in his/her own name or under a particular business name without having chosen to register a limited company and/or become engaged in a business partnership.
THE CHARACTERISTICS OF A SOLE TRADER
* You provide or raise the capital for your business
* You make all the decisions
* You are personally liable for all legal actions and debts of the business
* Your liability is unlimited; if the business fails, debtors can call upon your private assets and even your family home
* The business profits, however that you make belong solely to you. It is effectively your salary as well as the interest on your capital (assuming the business is making profits).
SOLE TRADER versus LIMITED COMPANY ADVANTAGES
Running a business as a Sole Trader does has fewer legal formalities and compliance requirements compared to other structures such as, for example, limited companies.
The main advantages of you being a Sole Trader are:
1. Decisions are made by the business owner.
2. Business Expenses which are incurred in running the business are allowable deductions against profits.
3. All profits are kept by the owner - there is no disbursement
4. You are not required to file an annual return and accounts each year on the public register as is the case with a limited company. This should not be confused, however with the Sole Traders obligation to file a tax return each year.
5. Any losses that the business incurs during the start up phase can be possibly offset against any other income for tax purposes or carried forward against future profits of the business.
The main disadvantages of you being a Sole Trader are:
1. Running a business as a Sole Trader means that you are fully liable for all debts of the company at all times and also on business cessation should there be debts outstanding. The benefit of limited liability, as in the case of shareholders of a limited company does not apply.
2. It is often more difficult for Sole Trader business's to attract investment and raise finance from institutions. Where Finance, Grants etc are obtained there may be a requirement for a limited company.
YOUR OBLIGATIONS AS A SOLE TRADER
There are a number of requirements and obligations which you must comply with:
a) You are legally obliged under the Registration of Business Names Act to register the business name under which you are trading if such trading name is not carried on under your own name
b) You are legally obliged to register as a Sole Trader for tax purposes with the Revenue Commissioners
c) You are obligated to maintain proper bookkeeping and accounts records.
d) You must register for VAT where annual sales turnover exceeds €37,500 in the case of the supply of services and €75,000 in the case of a Sole Trader supplying goods.
e) You must register as an employer if you intend hiring staff to work in your business and you must operate a payroll for such employees
f) You will be operating your business concern with full and total personal liability and responsibility for any and all outstanding debts, charges, fines and or litigation matters that the business may incur from time to time and or at the time of business cessation.
If you have any questions or queries on any of the above, do feel free to contact me.