What are the main differences between a sole-trader and a company structure?

Sole Trader

A sole trader operation is generally a lot easier and cheaper to set-up than a company. It requires much less financial and regulatory maintenance and there is extensive freedom in the decision-making process.

That said, there is no limitation on liability for a sole-trader. In the event of unpaid debts or bankruptcy, the individual’s personal assets are not protected, creating a high level of risk. This is also the case where legal action is taken against the sole-trader.

Company

A company structure entails a more expensive and complex set up procedure. In addition, a company requires consistent administrative maintenance and government reporting.

With the possibility of multiple directors and shareholders, decision-making may not be as flexible. However, there is a more comprehensive level of protection for the personal assets of directors, irrespective of the precarious financial or legal situation of the company. There is less risk in taking out loans and increased freedom in the allocation of profits.

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Updated — Jun 4, 2018