A sole proprietor operates the business personally on their own behalf. The business is not operated through a separate legal entity. A sole proprietor is personally liable for all of the debts and obligations incurred (and all of the revenue and benefits generated) in conducting the business.

Commencing a business as a sole proprietor

The decision to conduct business as a sole proprietor, or to instead choose another form of business structure will be influenced by many factors, including:

• • the individual's appetite for risk;
• • the number of parties wishing to be involved in the business;
• • the desire for long term operations, whether the individual has a dynastic view of their business;
• • tax planning;
• • estate planning;
• • asset protection;
• • the individual's access to capital;
• • comparatively low compliance costs; and
• • the physical area of business operation.

Establishing a sole proprietor business requires minimal formalities. Unlike companies, for example, there is no separate legislation which governs the way a sole proprietor structure must be established or the way a sole proprietorship is governed. However, a person trading under this type of structure will be subject to the many laws which apply to running businesses generally, such as employment and occupational health and safety laws, laws about fair trading and consumer protection, taxation and so on.

The primary registration obligations of a sole proprietor relate to:

• • business names;
• • tax, including a Tax File Number, an Australian Business Number, Goods and Services Tax registration and so on; and
• • regulated industry or activity specific registrations.

See Commencing a business as a sole proprietor.

Advantages and disadvantages of a sole proprietor structure

Advantages of a sole proprietor structure include:

• • ease of establishment;
• • control over the operation and affairs of the business;
• • fewer ongoing compliance and reporting obligations;
• • relative privacy; and
• • taxation implications of a sole proprietor structure can be both an advantage and a disadvantage, depending on individual circumstances.

Disadvantages of a sole proprietor structure include:

• • unrestricted personal liability;
• • limited alternatives for succession planning, estate planning and asset protection;
• • taxation, as the business income of a sole proprietor is not distinct from personal income and has limited, if any real, tax planning and income splitting options;
• • limited, if any real, tax planning and income splitting options;
• • inapplicability to businesses with multiple owners;
• • reliance on debt financing, savings and cash flow to fund their business activities; and
• • practical difficulties can arise on sale of the business because goodwill very often attaches to the individual.

See Advantages and disadvantages of a sole proprietor structure.

Ongoing compliance requirements

Once established, a sole proprietor business structure requires minimal ongoing, reporting and compliance obligations. Again, those obligations primarily relate to maintaining and updating business name registrations, as well as tax related compliance obligations.

See Ongoing compliance requirements.

Changing to another business structure

Changing from a sole proprietor structure to another form of business structure ordinarily involves the transfer of the assets and undertaking of the business, or other legal arrangements by which the new structure carries on the relevant business.

See Changing to another business structure.