Unincorporated Businesses - Sole Traders
- AS, A Level
- AQA, Edexcel, OCR, Eduqas, WJEC
Last updated 14 Apr 2017
The most common type of unincorporated business is the sole trader.
A sole trader is just an individual owning the business on his/her own.
Remember that a sole trader can also employ people – but those employees don’t share in the ownership of the business.
The sole trader owns all the business assets personally and is personally responsible for the business debts. Crucially - a sole trader has unlimited liability.
The main benefits and drawbacks of operating as a sole trader can be summarised as follows:
Advantages of being a sole trader:
- Quick & easy to set up – business can always be transferred to a limited company once launched
- Simple to run – owner has complete control over decision-making
- Minimal paperwork
- Easy to close / shut down
Drawbacks of being a sole trader:
- Full personal liability – “unlimited liability”
- Harder to raise finance – sole traders often have limited funds of their own and security against which to raise loans
- The business is the owner – the business suffers if the owner becomes ill, loses interest etc. Can pay a higher tax rate than a company
The simplicity and informality of setting up as a sole trader means that it is used by many small and start-up businesses, including those that are not run full-time.