A sole trader also known as sole proprietorship or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.
The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts.
Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s. It is a “sole” proprietorship in contrast with partnerships or Limited Companies.
Whether you are already trading, or considering starting a new sole trader business, Jon Essam & Co Limited can help you.
The main advantages of setting up as a sole trader are:-
- It is easy to organize and needs only a small amount of capital.
- It permits a high degree of flexibility for the owner since he/she is the boss of the business establishment.
- Due to the owner’s unlimited liability, some creditors are more willing to extend credit.
- The owner receives all the profit of the business
The main disadvantages of being a sole trader are:-
Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize; other types of business entities have more documentation. The enterprise may be crippled or terminated if the owner becomes ill. Since the business is the same legal entity as the proprietor, it ceases to exist upon the proprietor’s death. Because the enterprise rests exclusively on one person, it often has difficulty raising long-term capital.
- Has limited resources. Banks are reluctant to grant loans to single proprietorship considering its small assets and high mortality rate.
- Unlimited liability for business debts. The single owner is responsible for paying all debts and damages of their business.
- If the firm fails, creditors may force the sale of the proprietor’s personal property as well as their business property to satisfy their claim.
- When the owner dies, the continuation of the business is difficult, because a new owner must typically accept all liabilities of the business
Please call us on 01832 730280 to discuss further how we can help you set up and run your sole trader business.