A sole trader is an individual who runs the business without partners or a company structure. This is the simplest form of business ownership and can be commenced with little outlay.
RECIPE FOR SUCCESS INGREDIENT CARDS
Ingredient 1: Business Law
Question:
What are the advantages and disadvantages of a sole trader?
Answer:
The sole trader can trade under his/her own name, or register a business name. However, registration of a business name does not make the sole trader, a separate legal entity. The business belongs to the sole trader who is personally responsible in law.
A sole trader is an individual who runs the business without partners or a company structure. This is the simplest form of business ownership and can be commenced with little outlay.
As it is important for the sole trader to keep the business operation separate from personal affairs, you should open a separate bank account for the business and keep separate records.
The sole trader has full control of the business including ownership of all profits and responsibility of all debts.
What are the advantages and disadvantages of operating as a sole trader:
Advantages
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- Low start-up costs.
- The owner has direct control and authority over the business.
- All financial rewards to the owner.
- No separate business tax return is required.
- Limited record keeping and reporting.
- No registration of business name required if using own name.
- Greater privacy
Disadvantages
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- Holidays may become a luxury you can’t afford, simply because nobody else has the skills to run your business while you are away.
- Personal liability for all debts; can be sued and lose all your personal assets (including house and car).
- Liability for taxation as an individual; need to pay provisional tax.
- Ownership of the business cannot be transferred to another individual.
- The pressure of having to make all the decisions and take on all the responsibilities.
- More difficult to borrow money because some financiers only advance funds based on tangible assets.
- If you are sick or have an accident, there is no one to run the business.
- Business ceases on the death of the owner unless special provisions are made.
Your accountant or solicitor can give you advice on this decision.
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