What is a Sole Trader?

A Sole Trader is one individual operating a business under his or her own name or under a registered business (trading) name. In order to trade as a Sole Trader you must have your own A.B.N. (Australian Business Number).

Compared with the other business structures, operating as a Sole Trader is the cheapest option to set up and the easiest to administer.

Most Sole Traders operate under a Business Name which provides the business with an identity and a way in which your customers can find you among your competitors.

A Sole Trader is a business operating body where the business decisions are generally being made by one person (usually the owner). However, this does not mean that there is only one person in the business who carries out all the work and responsibilities associated with the business. Like any business, a Sole Trader is able to employ others to carry out daily tasks and duties to ensure the business is able to supply its customers with services or products.

Legal liability and protection of personal assets, are two areas where operating as a Sole Trader is a major disadvantage. In the event of a legal claim against the business, where insurance does not cover the full extent of any damages awarded, the owner’s personal assets can be attacked to pay the damages.

As people cannot employ themselves, a sole trader is not required to pay WorkCover on earnings from the business.

However, this also means that if an accident occurs the Sole Trader will not receive WorkCover benefits. To protect himself or herself, anyone operating as a Sole Trader should take out sickness and accident insurance.

There can be little set-up costs other than registering a Business Name and setting up an administration system such as an accounting or bookkeeping software which produces a statement showing business revenue and expenses, and the profit or loss.