Sole Trader or Limited Company? The Pros and Cons

Sole Trader or Limited Company? The Pros and Cons

Plenty of people reading this will have thought about leaving their nine-to-five job, and starting their own business. It’s common to view this as a means of escaping the drudgery that so often makes up the work day. And then there is the freedom, and ability to be your own boss, and to do whatever you like. However, after moving beyond this initial stage of optimistic fantasy – it quickly becomes apparent that being your own boss is an awful lot of work. It is also hard to decide whether to start a company, or become a sole trader.

The following discussion outlines some of the primary pros and cons of being a sole trader, or creating the common “Pty Ltd” company.

Decision Making

A Pty Ltd company will need to run all decisions through its directors, in accordance the the Corporations Act. A sole trader can simply make decisions as they see fit, without worrying about what other parties think (within the law, of course).

Loan Security

A limited company can use its own assets as security for loans. However, directors are sometimes asked to give personal guarantees. Sole traders often need to use their own personal assets to secure loans, which can include their family homes.