You do not need to open a business bank account if you are self-employed, because you are a sole trader. However, this applies exclusively to sole traders. Therefore, if you are another entity such as a partnership or company, you have to open a business bank account for tax purposes. To double-check whether you are registered as a sole trader, you can look up your ABN here.
Many documents are needed when starting a business, but if you are a sole trader, a majority of these are not necessary. However, it’s important to keep these documents in mind to ensure your company is legally compliant if you do decide to expand.
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Is a Business Bank Account for Me?
Although sole traders are low-cost to set up, the risk is larger, because you have unlimited liability. Therefore, if things go wrong in the business, your personal assets can be taken too! Although a separate bank account can not prevent this from happening, as with most business decisions, you must weigh out the advantages and disadvantages regardless.
Advantages
A business bank account can seem more professional to customers. It is also easier to monitor business transactions, and recognise income or losses. Additionally, you can link a business bank card to your business bank account. Subsequently, it will be easier to find transaction records for tax purposes, if everything is in one place. Generally, banks encourage sole traders to open a separate business bank account.
Disadvantages
Keeping a record of transactions is now easier with internet banking. There are also many accounting software programs that can make the process of tax return and record keeping easier. Nonetheless, it’s important that you record honest transactions, and differentiate personal expenditures. Further, you must keep financial records for at least 5 years.
Other Responsibilities to Remember
If you decide to employ people, then you must comply with workers’ compensation insurance and superannuation contributions. You can also decide to make voluntary superannuation contributions to yourself. Finally, because you are a sole trader, there is a serious emphasis on sole regarding many business matters. Namely, you can not split business profits or losses made with family members. Additionally, you’re personally liable to pay tax on all the income derived. Ultimately, the decision is up to you to weigh the pros and cons. However, we recommend consulting a small business lawyer today to assist in this decision-making process.
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