Choosing a Business Structure

When starting out, you need to decide on a business structure. Here’s a breakdown of the most common options:

Sole Trader:
Many builders begin as sole traders, taking on side jobs while using tax/accounting platforms like Hnry to manage their finances. It’s a quick and easy way to bring in money on the side with minimal setup.

Company:
Some choose to register their own company, operating as a one-person contractor for people they already know. Most hire an accountant to manage their finances and handle their year-end accounts. While this takes more time to set up, it's a better option for those looking to build a long-term business.

Partnerships:
I’m not a fan of partnerships, especially for those new to business. Without experience, you may not fully understand what you're committing to, and partnering with someone is similar to marriage — it comes with serious obligations. For that reason, we won’t cover partnerships here.

Sole Trader vs.Company: What's the Difference?

The biggest distinction — Risk and Liability.

As a sole trader, you’re personally responsible if something goes wrong. Here’s a worst-case scenario: John, a sparky (electrician), owns his home. He makes a mistake on a job, and the client’s house burns down. John could be personally sued for the $350k replacement cost, putting his own home at risk.

A more realistic scenario: John breaks a $10 photo frame at a client's house. He simply buys another from Kmart and moves on. Easy.

If you’re competent at your job, you’ll likely be fine!

As a company owner, your liability is limited to the assets owned by the company. Using the same example: John’s company owns $100k worth of assets, and he causes $350k in damages. In this case, only the $100k worth of company assets is at risk, though the claimant may still pursue other legal actions for the remaining $250k.

In the realistic scenario: John replaces the photo frame, apologises, and carries on. The outcome is the same as being a sole trader.

Bottom line: If you’re good at what you do, you’ll be fine. But the main difference is in the level of protection you get with a company structure.

Other Key Differences: Sole Trader vs. Company

Flexibility:
A sole trader has the freedom to take jobs whenever they choose without any fixed operating costs. This route is ideal for those who start with a full-time job and take on “side jobs” in their spare time. Often, these “side jobs” grow into a full-time business.

Commitment:
A company requires ongoing paperwork, including annual returns, tax filings, and end-of-year financials. Since you’re investing more time and money into a company, it’s important that the business makes money to justify the effort. There are potential tax advantages to owning a company, but the details depend on your individual circumstances, so consult with an accountant.

What Does This Mean for You?

If you’re starting with little cash or assets and want to test the waters with jobs under $30k, it’s a good idea to start as a sole trader. The risk is lower, and it’s a simple way to begin building your brand. You can always register a company later.

If you have cash, assets, and are committed to growing your business long-term, registering a company might be the better choice. There are potential tax benefits along this path, too. You don’t need to register right away, but be ready with valid ID and proof of address when the time comes.

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Next Steps:
Regardless of which path you choose, speak with an accountant or lawyer. They can help you determine the best structure for your business.

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Once you’ve chosen your business structure, move on to the next step.