Sleep Well #1:
Have I Chosen the Right Business Structure?
In the “Sleep Well” series, Bosspac talks with self-employed people from New Zealand about the important decisions they had to make when starting and growing their business. We spoke to 6 self-employed people who explained their reasons for choosing to operate under a sole trader or company business structure.
Sarah who works part-time as a self-employed actor reveals: “I heard trading as a sole trader is a lot simpler.”
Sarah started acting and after some time realized that she has to submit IR3 return. Sarah wanted to have a quick and easy way to set her business up and be compliant. Her self-employed income is irregular and for her, it didn’t seem to justify the cost of registering a company. Acting is more like a hobby for Sarah and she has no plans to move to acting full-time.
Want to limit liability?
Lisa is working as a business consultant and she trades under a company structure: “I chose to work through my company because I want to limit my liability.”
Lisa has also had large corporations as clients and she just prefers having the peace of mind that if something goes wrong her liability is limited. It’s harder for her to lose her private assets such as her house in case something goes wrong in the business as Lisa trades under a company structure.
Lisa has just finished renovating her house and tidying the garden
Is paperwork driving you crazy?
Michael is very busy fixing electronics of cars and sometimes he even uses the help from other electronics specialists to help him keep up with the high demand. Time is money for Michael and he hasn’t taken the time to incorporate a company: “I like to be in control of things, but I hate the extra paperwork and reading online to research all the options. That’s why I’m a sole trader.”
Michael is not afraid of not having limited liability because he always puts his clients first and provides them with the highest quality work and customer service.
Michael enjoys doing fun activities with his clients
Have plans to grow and sell your business?
Matthew is starting his own startup. He is currently the only founder of the company and is actively searching for a co-founder.
Matthew has bigger plans and he eventually wants to sell the business. “I have a company because I plan to grow my business and sell it in the future. It would be much harder for me to do it if I operated as a sole trader.”
Just occasionally helping out someone you know?
It all started when Emma helped out a friend’s friend with graphic design. At the time, she didn’t really have a portfolio and she didn’t know how it will work out: “I didn’t know for how long I’ll be doing this and I chose to operate as a sole trader. I didn’t want to pay extra for incorporating a company and I didn’t want to invest time and money learning about other business structures.”
Now Emma’s business has grown to a strong client base. She is happy she chose to trade as a sole trader because there have been no issues and Emma believes her choice actually saves her time and money.
Emma believes she is better off being a sole trader
Want to look bigger?
James is running his own website development business and he trades under a company structure: “I chose to trade as a company because it gives me more credibility when negotiating deals with larger organisations.”
James believes that working under a company structure has helped him to land a few important contracts with bigger clients. James revealed it is easier for him to convince clients that they are a larger team than just one person (even though he is just a 1-man band).
Which one should I choose?
As you can see, there are advantages and disadvantages for choosing each of the business structure (and it’s definitely not the end of the list!). It all depends on your preferences and sometimes there can be industry specific things that can impact your choice. Talk with other people who are self-employed in your industry and ask them what helped them to make the decision.
Thank you, Sarah, Lisa, James, Michael, Matthew and Emma for chatting with us!
Have an interesting self-employment story to share? Have a topic that you want to hear about? We’d love to hear from you!
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The information provided here is of a general nature. It is not intended to be a substitute for professional advice.