As the term 'sole practitioner' (or 'sole trader') suggests, this is a type of architectural practice with only one individual. A sole practitioner may contract work out to others and employ staff, however he or she is the sole business partner.
This is the simplest and cheapest form of practice to set up. As a sole practitioner, the architect will be personally entitled to all profits but also exposed to all the risks and personally responsible for all debts and liabilities. The sole trader also pays tax at the personal income tax rate but can offset the expenses of earning income as a sole practitioner against all personal income.
Other advantages and disadvantages of sole practice are:
Advantages:
- simplicity and ease of formation
- low start-up costs
- the least amount of regulation
- the most amount of privacy and autonomy
- the architect is only required to pay workers compensation, make superannuation payments or pay payroll tax if they take on employees.
Disadvantages:
- narrow management base
- lack of continuity of the business
- capital limited to personal assets or own ability to raise it or borrow it
- personal capacity for work and client perceptions determines success
- personal liability for all business debts, and for all civil claims made by a third party against the practice (eg for professional negligence)
- there is no isolation of the sole practitioner's personal assets from the practice's assets where, for example, a creditor is attempting to satisfy a debt owed by the sole practitioner, or where a court makes an award for damages against the practitioner.
In Australia, anyone can carry on a business as a sole trader. However, if the architect wishes to operate under a name other than his or her own name, they must register the business name.
The sole trader usually must have an Australian Business Number, or ABN. ASIC has general information on whether you are entitled to an ABN and how to apply for one.
The sole trader will also usually be required to register for the Goods and Services Tax (GST) and fulfil the reporting obligations. The ATO has guides on who must register for GST.
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