If you are starting a landscaping business you doubtless already know that there are numerous decisions you have to make. These include what landscaping services you are going to offer, whether you undertake landscape design, construction, or both, and how many employees you plan to take on, to name but three.
In addition to these kinds of decisions related to how your landscaping business will operate, there are also several legal and financial decisions to make. These include how you are going to fund the start-up of your business, who your commercial lawyer is going to be, and whether you wish to operate as a sole trader or as a company.
The latter question seems to confuse many people who are starting a landscaping business for the first time. Given that it is a decision that will define the legal status of your business, plus make a difference to several aspects of the administrative requirements too, it is a subject worth covering in some more detail.
Definitions Of Sole Trader And Company
By universal agreement, and by legal status, a sole trader is the simplest business structure you can have. As a sole trader you, the individual who owns the business, ARE the business. In other words, both you and your business are considered the same legal entity.
By contrast, a company business structure means that the business and you are separate legal entities. The assets of the business are not your assets and vice versa. For a company to exist it must have at least one shareholder and at least one director. There are several additional differences between operating as a sole trader or as a company which we have highlighted below.
Getting Started
To start as a sole trader you require an Australian Business Number (ABN), and if you want your landscaping business to operate under a name that is not your own, then you need to register that business name.
More complex is the setting up of a company that requires an ABN and an Australian Company Number (ACN). To be issued an ACN you must register your company with the Australian Securities and Investment Commission (ASIC). You can register a business operating name for a company if you do not wish to trade using its legal name.
Costs
Given that a company has a more complex structure than a sole trader, it will incur many costs which a sole trader does not. As well as the additional start-up costs, such as the fees to register a company being upwards of 400 AUD, it incurs other costs such as a fee for an annual ASIC review, and it may also pay more in accounting and banking fees.
Control
If you want total and absolute control of your landscaping business then being a sole trader is the way to go. You can make all decisions whether long-term or day-to-day, without reference to anyone else. Conversely, with a company, it usually means having shareholders and other directors, especially if the company grows and has investors. In this scenario, many major decisions will have to be agreed upon with other directors or approved by shareholders.
Liability
One of the biggest reasons to carefully consider your business structure is the liability each of the two options has. As a sole trader, you are the business therefore any liabilities the business has, be they financial or legal, are your liabilities. At the extreme, it could mean your personal assets are at risk should the business have large debts to pay, or worse, it goes under.
With a company, any debts or other liabilities do not fall upon you therefore your personal assets would not normally be at risk should something befall the company. By that token, all assets owned by the company cannot be claimed by you.