Thinking about starting your own business after graduation? Maybe you’re already earning money from your social media presence, or planning to start a side hustle while studying? Understanding different business structures might seem boring, but it’s actually super important for your future business journey. Let’s look at the difference between being a sole trader vs a company owner, and explore the main ways you could potentially structure your business.
NOTE: before anyone gets all excited, this is not financial or accounting advice – always ask a professional about your options before making any big decisions.
What is a sole trader?
A sole trader (known as a sole proprietorship in North America) is the most straightforward way to run a business. Think of it like this: you and your business are basically the same thing in the eyes of the law.
Common terms around the world include:
- Australia/New Zealand/UK: Sole Trader
- USA/Canada: Sole Proprietorship
What being a sole trader might look like
Imagine you’re a talented makeup artist doing formal makeup for fellow students, or maybe you’re great at graphic design and creating logos for local businesses. As a sole trader, you could start taking bookings or clients right away without too much paperwork. You might operate under your own name like “Sarah’s Beauty Services” or choose a business name like “Glow Up Studio.”
What is an incorporated company?
An incorporated company creates a separate identity for your business. In Australia, you might hear people talk about “Pty Ltd” companies. Other countries have similar structures with different names.
Common terms around the world include:
- Australia/New Zealand: Proprietary Limited (Pty Ltd)
- UK: Private Limited Company (Ltd)
- USA: Corporation (Inc.) or Limited Liability Company (LLC)
When might someone choose to be a sole trader?
Let’s look at some real-world scenarios where starting as a sole trader might make sense.
For the creative entrepreneur
- Imagine you’re a budding copywriter taking on freelance work while studying
- Maybe you’re building a following as a fitness influencer on social media
- Perhaps you’re selling handmade jewellery through Etsy
For the trade professional
- You might be an apprentice electrician planning to go out on your own
- Or a qualified beauty therapist starting with a small client base
- Maybe you’re a personal trainer building up your client list at the local gym
The great thing about being a sole trader instead of a company owner in these situations is that you can start small and test your business idea without a lot of upfront costs or paperwork. You might find this structure works well while you’re building your client base and learning the ropes of running a business.
When might someone consider an incorporated company?
Let’s look at when some of these same businesses might think about incorporating.
Growing your creative business
- Your copywriting business has grown and you’re thinking about hiring other writers
- Your fitness influence has led to creating your own supplement line
- Your jewellery business is now supplying to major retailers
Scaling your professional services
- Your electrical business has expanded to managing multiple jobs and contractors
- Your beauty therapy practice has grown into a full salon with staff
- Your personal training has evolved into a chain of boutique fitness studios
Things to think about
Remember, this information is just to help you understand the basics – it’s not financial or legal advice! When thinking about business structures, here are some things you might want to consider:
As a sole trader
- You might find it easier to get started quickly
- Your accounting could be simpler at first
- You might have more flexibility while figuring out your business model
- You could be personally responsible for business debts (something to think about!)
With a company
- You might find it easier to grow and bring in partners
- Your personal assets could be better protected
- You might look more professional to bigger clients
- There could be more paperwork and costs involved
Starting your journey
Many successful businesses start small and change their structure as they grow. Take the example of a student starting as a freelance graphic designer: they might begin as a sole trader, taking on small projects between classes. As their client base grows, they bring in other designers, and eventually might choose to incorporate their growing design agency.
Important note
This article is for general information only and doesn’t consider your situation (of course).
Business structures can affect your taxes, legal obligations, and financial future. So, it’s always important to chat with qualified professionals like accountants, lawyers, or business advisors before making any decisions about your business structure. They can look at your specific situation and help you understand what might work best for you.
Remember, there’s no one-size-fits-all answer – the right structure depends on your unique circumstances, goals, and the type of business you want to build. The key is to get some good advice before you get started. Running a business can be one of the most amazing experiences, so best of luck to you whichever way you go.
If you want to find out more about starting your own business, we also have other blogs on entrepreneurship you might like to check out.