Operating As A Sole Trader? Here’s What You Need To Know (2025 Updated)

Contents

If you’re thinking about starting your own business, that’s great news! In 2025, there are more opportunities than ever for passionate entrepreneurs looking to make their mark.

Like many businesses, you might start by setting up as a sole trader. This approach remains a popular choice because it keeps things simple and cost-efficient.

Setting up as a sole trader is actually quite simple, but it’s important to understand what this means for you – both now and in the long run.

Put simply, operating as a sole trader means you’ll be running your business under your own name without the additional complexity of a separate legal entity.

Rather than setting up a different structure (such as registering a company), a sole trader structure is ideal if you want to keep things simple. It helps keep your costs low, you’ll enjoy a great deal of flexibility, and there’s very little administrative work involved. For more insights on starting as a sole trader, you might also want to read our guide on operating as a sole trader.

However, it’s critical to understand what being a sole trader means for you legally and financially over time.

In this article, we’ll guide you through what it means to operate as a sole trader: the opportunities, the risks, and the essential legals you’ll need to consider to run your business successfully in 2025.

How Do I Set Up As A Sole Trader?

When you’re setting up as a sole trader, the very first step is to register for an Australian Business Number (ABN). This is essential for all your business dealings and is a quick, free process that you can start here.

Under current law, operating as a sole trader means you may be treated as an independent contractor, which comes with its own set of rights and responsibilities.

Once you have your ABN, you’ll want to also consider registering your business name if you prefer not to trade in your own name. This additional step can give your business a professional edge without greatly increasing your initial costs.

After your ABN is sorted, you need to start thinking about other key business tasks such as:

Paying your own superannuation (as well as that of any employees you hire, keeping in mind the latest guidelines for 2025).
Organising your insurance – including public liability, professional indemnity, and any motor or business-specific insurance.
Managing your income tax obligations and exploring any available concessions.
Deciding on how you’ll send out invoices – many modern online payment systems now offer automated invoicing to help streamline your cash flow.
The contracts you’ll have with your customers, which we’ll discuss in more detail later.

If you’re not completely sure how to set up as a contractor, don’t worry! We’ve put together a handy checklist to guide you through the process – you can find it here.

What Does It Mean To Be A Sole Trader?

Operating as a sole trader is very common for many small businesses – from musicians and consultants to shopkeepers, creatives, and tradespeople. Its popularity continues into 2025 due to the minimal set-up costs and reduced bureaucratic hassle.

However, it’s important to understand what being a sole trader entails beyond the ease of registration:

Lower set-up costs: It’s free to get your ABN and, if you choose to register a business name, the fee is approximately $36 per year.
Simpler tax arrangements: As a sole trader, your business income is treated as part of your personal income. There’s no requirement for a separate business bank account – though many find it practical to keep their finances organised.
You can employ others: While you can hire employees, note that as a sole trader you are responsible for their superannuation and any applicable workers’ compensation insurance (check the latest 2025 requirements to ensure compliance).
Personal liability: You are personally liable for any business debts, meaning your personal assets could be at risk if your business encounters financial difficulties.
You’re your own boss: As the sole owner, you have complete control over decision-making in your business.
No statutory sick pay or personal leave: Unlike employees, sole traders must organise their own leave arrangements.

How Can I Limit My Liability As A Sole Trader?

At Sprintlaw, we understand that personal liability is a common concern for sole traders. Since the business operates under your own name, any debts or liabilities may impact your personal assets. In 2025, striking the right balance between legal protections and practical insurance is more important than ever.

To limit your liability as much as possible, consider the following:

Having a well-drafted contract in place – this helps to clearly define the limits of your responsibility with each client. For more on effective contract drafting, check out our Contract Drafting services.
Exploring comprehensive insurance options – a good insurance policy can help cover any liabilities not addressed by your contracts. You may also wish to review our guidance on risk management and related legal services.

By ensuring that legal documents and insurance work together, you can significantly reduce your exposure to risk as a sole trader.

If I’m A Sole Trader, How Can I Make Sure I Get Paid?

A recurring issue we encounter among sole traders is difficulty in receiving timely payments. Effective cash flow management is crucial, and in 2025, many business owners are leveraging modern online invoicing platforms that integrate directly with payment systems.

As a sole trader, it’s standard practice to send invoices to your clients when you complete work. However, having a robust contract in place can help ensure that you’re paid promptly and on time.

If payments are delayed, you might find yourself needing to send letters of demand – a process that can strain valuable client relationships. A solid contract can help mitigate these issues from the outset.

Why Do I Need A Contract With My Clients?

No matter how solid your relationship with your clients appears, having a written agreement is an essential safeguard. A well-crafted contract prevents misunderstandings, protects both parties, and can save you from costly disputes later on.

You might refer to this agreement by various names – whether it’s a Contractor Agreement, Business Terms & Conditions, or a Service Agreement – but its primary role is to clearly lay out the expectations for both you and your client. For detailed advice, explore our Service Agreement resources.

Your contract with your clients will generally serve to:

Lay out the terms. It describes exactly what services you will provide – and what you won’t – ensuring both parties are aligned on expectations. Many clients appreciate the clarity, and our customisable contract templates, such as our Terms of Sale, can be adapted to suit your needs.
Secure your revenue streams. The agreement details when and how fees should be paid, whether a deposit is required, and the consequences of late payment, including any applicable interest.
Limit your liability. Your contract should balance protecting you from excessive risk while complying with Australian Consumer Law protections.
Protect your intellectual property. Any materials you create as part of your work should clearly belong to your business. For further reading on intellectual property, see our IP Protection guide.
Plan for disputes. A contract will specify how any disagreements should be handled, often including mediation clauses to resolve issues efficiently.

Without a clearly written contract, misunderstandings can arise – potentially leading to disputes that impact your business operation. That’s why getting your agreements in writing is a wise move.

As A Sole Trader, Can I Sub-Contract Out My Work?

When working as a sole trader, you may occasionally wish to sub-contract some of your work to another business. For instance, if you run a cleaning service and a client requests specialised carpet cleaning you don’t offer directly, you can sub-contract that specific task to a specialist.

Your client pays you, and you, in turn, pay the sub-contractor. However, the key to successful sub-contracting lies in clear agreements.

It’s essential to have a Sub-Contractor Agreement in place with your sub-contractors to clarify the scope of their work, payment arrangements, and procedures in case of disputes. Additionally, ensure that your own client contract (such as your Service Agreement) explicitly permits sub-contracting, so everyone is on the same page.

A good lawyer can help you draft these agreements to protect your interests and maintain strong client relationships.

What If My Business Grows?

While a sole trader setup is a sensible, straightforward, and cost-effective structure when starting out, it pays to plan ahead. As your business flourishes in 2025, you might find that the sole trader structure no longer meets all your needs—especially when it comes to limiting your personal liability and accessing additional funding.

Many entrepreneurs eventually consider transitioning into a partnership or establishing a company. In our Sole Trader vs Company comparison, we explore the advantages and disadvantages of each structure so you can decide whether restructuring is right for you as your business grows.

Planning your long-term business strategy—including when to change your structure—is an investment in your future success. For more tips on aligning your legal structure with your business goals, check out our Does Business Structure Matter? article.

Need Legal Help?

Whether you’re just getting started or have been operating as a sole trader for a while, don’t hesitate to reach out for expert legal advice. Modern tools and streamlined processes in 2025 have made it easier to set up robust contracts and protect your business interests.

We’re here to help with any questions you might have regarding your business structure or contracts. For tailored legal assistance, explore our resources for small business legal support or visit our guides on Business Set Up: Ideas and Plans. You can reach our friendly team at team@sprintlaw.com.au or call 1800 730 617.

Remember, as a sole trader, having clear contracts and proper legal protections in place today can save you time, money, and stress tomorrow – setting you on a path to sustainable business growth.

Regie Anne Gardoce

Regie is the Legal Transformation Lead at Sprintlaw, with a law degree from UNSW. Regie has previous experience working across law firms and tech startups, and has brought these passions together in her work at Sprintlaw.

Justine Wu

Justine is a legal consultant at Sprintlaw. She has experience in civil law and human rights law with a double degree in law and media production. Justine has an interest in intellectual property and employment law.

Protect your sole trader business.

Speak to our expert lawyers, quick and online.