Now theoretically… I'm going to start this off with a disclaimer. I'm not an accountant, I'm not a lawyer. I'm not really able to advise you on whether or not you need to be a company. Having said that, my personal experience, the reasons I started a company from being just a sole trader is when I know that it’s going to be bigger than just a small operation. There are some benefits to being a company. You really probably need to look at your personal circumstance and talk to your accountant to make a thorough decision. But I can definitely share my thoughts on it.
Protecting other investments:
I think if you have other assets or investments; it’s could be a good idea to have a company because that could shield you a little bit if something was to go wrong. If you’re going to grow the business past the point of being just a small income for yourself, you may consider being a company because then there are some benefits in the way that the company can make purchases and assets and liabilities and all those things get handled a little bit differently. Company tax rate is lower than a personal tax rate is after a certain point, which means you can retain the earnings in the company, reinvest it, and pay a lower tax rate on that money rather than personally taking the money because you’re forced to. If you’re not a company, you’re forced to declare the money as yours. Once again, like I said at the beginning, I’m not an accountant so I can’t truly give you solid advice. Once again, these are just my thoughts and opinions. But it was a question I got asked, ‘Do I need to be a company?’
What is your goal for the business:
You've really got to make that decision, am I really going to be a sole practitioner, personal individual that trades my time for money and earns a salary, or am I going to grow something that’s multimillion dollar and I may want to issue shares to other people. It just depends. There are so many different variables that it really does depend.
If you’re serious about growing a big business, I would suggest it’s probably something that you need to look at. Go and talk to your accountant. Get some advice based on your personal circumstance. I’m not even going to really risk trying to answer the question this is definitely what you should do. Because otherwise I might be telling you the wrong information.
A company comes with responsibilities:
Now having said all of that, having a company is a responsibility. Being a director of a company brings a whole bunch of new responsibilities. You've got filing that you've got to do on a regular basis; annually you've got to file company statements. As a director you become liable for everything that’s going on, not that you’re not on your own anyway, but it’s a little bit more structured, more legal, more enforced as a company director.
There are more costs:
The other thing, as a company there are other expenses as well. It’s more expensive to do your tax return. It’s more expensive to set up. It can be more difficult to set up because you want to set it up in a company name. Setting up bank accounts, phone accounts, buying equipment, all of that becomes a little bit more difficult.
Staying as a Sole-trader:
If you’re looking to just be an individual and get an income, trade your time for money on a small level, probably not something you want to go to the trouble of. It’s an expense, there’s extra work, it’s a lot more extra work in fact than just a personal tax return. But if you’re somebody who’s looking to build a bigger business and you think you may want to issue shares to other people, you think it’s going to be a multimillion dollar business, then definitely look at the viability of whether or not you should be a company.
Speak with your Accountant:
Hopefully that’s helped you. I know I haven't given you a solid answer there. I don’t think anybody will in a YouTube video because they won’t know your personal circumstance. If anything, it at least gives you some insight into the way I think about it. Go and talk to your accountant. They’re the best people to give you the advice. If you've got any questions or comments, or if you are an accountant maybe you can leave some comments underneath the video to help answer this question.
About the Author
Ben Fewtrell is a sought-after Business Coach, Keynote Speaker and trainer who has featured in Virgin’s Inflight Magazine and Entertainment Portal, SKY Business and “Secrets of Top Business Builders Exposed”. He is also the host of the popular Business Brain Food Podcast where he interviews leading experts on anything and everything business.