Why you should have a
COMPANY STRUCTURE not Sole Trader... When first setting up a business, it is common to use a sole trader structure, as it is relatively easy and cheap. E.g. you are a man or woman with a van providing a great painting service. ..Simple.
assets are very much at risk. Changing to a company structure turns your business into a separate legal entity, meaning the company can sue and be sued. This limits your personal liability.
Now, because of your outstanding service you are consistently fully booked. You need to hire other painters to keep up with increased demand and purchase multiple work vans and equipment. As your business grows, it is crucial that your business structure evolves with it.
It should however be noted that a director could become personally liable if they breach their legal obligations (e.g. the company became insolvent and the director allowed continued trade). Shareholders are only financially obligated to any remaining payment of their share price, and not to company debts. Most shares in proprietary limited companies start at $1.
Alternatively, you may aspire from the start to grow the business beyond just you and understand the importance of setting your painting business up properly from day one to protect yourself and your assets. Wherever you sit in this journey, a company structure is by far safer that being in business as a sole trader and here is why ..
SAFEGUARD YOUR PERSONAL LIABILITY
One of the biggest benefits gained from structuring your business as a limited company is that you can protect your personal property. As a sole trader you are personally liable for all business debts. You can incur debt and you be sued, which means your personal
14 | Aussie Painting Contractor
SECURING LOANS AND RAISING CAPITAL
Another plus in setting up a company is that a loan can be secured using your company’s assets. This is again because your company is a separate entity. On the other hand, a sole trader must use personal assets as a security, such as their home. In some cases, directors of a company will need to provide a director’s guarantee (this is a personal guarantee). As a director of a company, you will own shares in the company. A company can raise capital by selling shares to third party investors. A sole trader structure does not consist of shares, leaving a sole trader to rely on bank loans or partnerships for extra money.
