Business ownership - Sole traders 1.5.4

Sole traders - (Unincorporated) An individual owning the business on his/her own. Registered as self-employed and has unlimited liability. The sole trader owns all the businesses assets personally and is personally liable for the business debts. Therefore, their home and all of their assets may be used to pay off any debts that may incur and are unable to pay

ADVANTAGES

• Quick and easy to set up (they 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
• All profits go to the shareholder
• Financial records remain private
• Motivation is high as the success of the individual and the business are one and the same

DISADVANTAGES

• 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 because all profits are classed as income and are therefore taxable through income tax (unlike other businesses)
• Little specialist skills as the owner is a "jack of all trades" or will have to buy specialist employees