Pty Ltd vs Sole Trade

Each entrepreneur when first embarking on their journey to begin running their business has the option to either operate as a sole trader or as a company (pty ltd).

 

 

At first the differences may not seem obvious but the differences can affect your business and how it operates in a huge way.  Below we will go in to some of the differences that each and every entrepreneur should consider before choosing to go down either route when setting up their new project.

Liability

As a sole trader, loans and business expenses are usually secured by personal assets.  This means that if for some reason the business ends up in a state owing money the sole trader can end up losing personal assets and capital to make good on the businesses debts.  This is called unlimited liability.  As a company however, the liability is limited for funds and assets that are owned by the company.  This means that the owner of the company is generally protected.  This is called limited liability.

Authority

As a sole trader there are generally no rules (other than general laws) that govern the internal decision making process, meaning that a sole trader is free to make decisions for his/her business based on, well, whatever they really want.  As a company however The Corporations Act (2001) sets out that decisions will be made on behalf of the company by the directors and that other decisions are to be made by shareholders.  This can have the effect of a company making decisions that aren’t necessarily aligned with the founder’s decision (unless of course the founders are the sole shareholders and directors).

Start Up Capital and Costs

 

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As a sole trader there are no means to sell shares of your business.  In order to raise money the individual must either get a loan or enter some sort of partnership with another sole trader.  As opposed to if you open a company you have the ability to secure capital from outside sources by selling them shares in your company.  There are positives and negatives to selling shares to your company but these are out of the scope of this article.

Succession

If the sole trader dies, the business can’t be given to someone else, all assets and money of the sole trader is then handles as part of the sole trader’s personal assets.  A company acts as itss own entity.  If a founder of a company (pty ltd) passes the company shareholders and internal company laws are then used to decide what is to happen to that parties share in the company.  The founder’s shares can be redistributes, sold or passed on to relatives and family of the director.

Taxes

Sole Trader’s income is generally handles as the personal income of the sole trader.  Usually personal tax systems are separate from company tax systems.  In Australia personal tax is calculated in a tiered manner whereas a company’s tax is calculated at a flat rate of 30%.  In different situations one can be more beneficial than the other to the individual looking to start operating their business.
Registration and Fees
Generally there is no registration fee for Sole Traders.  Sole Trader’s receive an ABN can operate as a business under the Sole Trader’s name unless a business name is registered and associated with the ABN.  If there are any costs involved they are generally far lower than a companies.  As a Pty Ltd Registration can cost anywhere upwards of $500.00 and company registrant’s receive an CAN and then have to apply for an ABN separately (this may incur an additional cost).   Companies generally have ongoing costs.

In summary, the main differences between a company – pty ltd vs a sole trader, is that a “pty ltd” acts as different entity with its own entity type, properties, laws and abilities that govern the way it acts. Generally speaking a sole trader is an extension of an individual and debts, taxes and operations are generally grouped in to those of the sole trader.  A pty ltd offers limited liability to its directors and shareholders which could be a safe bet for anyone that is worried about procuring debt or losses during the course of operation, however the administration overhead for maintaining a company is generally higher.

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Is Retail Therapy for Everyone?

Escape, entertainment and rejuvenation are the usual reason for engaging in retail therapy. And while it may prove effective for some, no, it is not for everyone. Not everyone has a hefty bank account. If you constantly go for some retail therapy every time you feel the blues, then chances are you will end up broke. Also, people with underlying problems almost always will obsess about it. When it happens, it becomes more of a problem than a therapy. In fact, let’s say that you love leather purses, and you are actually obsessed by them, it could be healthy to buy them to reward yourself sometimes, but it became a punishment if you must buy them every time you go out and see one you like.

Using shopping as a coping mechanism to withstand pressure or great stress can prove problematic, since the problem itself is not being addressed, but rather buried away under a pile of bills and receipts. Avoiding the real issue through splurging is never a good move. Emotional spending just becomes an obstacle standing between the person and the solution to his problems.

For people who are better off from engaging in retail therapy, here is Lynnette Khalfani-Cox’s (The Money Coach), “8 Ways To Stop Emotional Spending”:

Leave the credit cards at home

As a matter of practice, leave your credit cards at home more often than not. Having credit cards, charge cards and retail department store cards in your wallet or purse makes it easy to make spur-of-the-moment shopping trips.

Use the “24-hour Rule”

When you see something expensive that you think you “must” have. For an unplanned purchase, be willing to wait for just one day, and tell yourself that if you still really want the item, you can always go back and get it the next day.

Set a budget

It’s fruitless to simply say “Just don’t shop!” If it was that easy, no one would have a shopping problem. To combat the emergence of the problem, and keep your finances intact, give yourself permission to do some shopping – within reason. Set a realistic budget.

Enlist the help of friends and family

Take a buddy shopping with you who will not let you go overboard. That friend should know your budget or your spending limit for that particular outing. Then it’s the friend’s job to get you out of the mall or away from the stores once you hit your limit.

Limit shopping trips to “emotion neutral” times

Be aware of your emotional state at all times, and make a pledge that you will not shop when your emotional state is off kilter. This means forgoing shopping trips when you feel any kind of emotional extreme – like elation, sadness or depression.

Channel your energy

Find alternative things to do to replace your shopping trips. Channel your energy into more positive activities like exercising, reading or pursuing a different passion or hobby.

Get to the root of the problem – and recognize your emotional spending “triggers”

You can also get a handle on your impulse shopping binges by preventing them in the first place – or learning why your spending is out of control.

Join a support group for shopaholics

Lastly, for serious shopaholics, try joining a support group.