A sole trader is a business that is owned by one person. It may have one or more employees. It is the most common form of ownership in the UK.
The main advantages of setting up as a sole trader are:
The reasons why sole traders are often successful are:
The legal requirements of a sole trader are to:
Keep proper business accounts and records for the Inland Revenue (who collect the tax on profits) and if necessary VAT accounts
Comply with legal requirements that concern protection of the customer (e.g. Sale of Goods Act)
The main disadvantages of being a sole trader are:
The reasons for being a sole trader are often a balance between business and personal costs and benefits. Many will prefer the satisfaction of running a business with little paper work against the risks, pressure and probably long working hours.
A sole trader is liable for any debts that the business incurs. This means that any money that the owner has put into the business could be lost, BUT IMPORTANTLY, if the business continues to incur further costs then the owner has to pay these as well. In some cases they may have sell some of their own possessions to pay creditors.
Such a risk often puts potential sole traders off setting up businesses, but also makes them consider the other forms of business structure.
Have you seen the tutor2u YouTube channel? Subscribe now and never miss a revision video!
tutor2u's acclaimed Worked Answers series provide detailed guidance on how students could have achieved top grades in recent AQA and Edexcel GCSE Business Studies exams.