Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Sole Trader Businesses
- It is a form of business where there is only one owner who manages and controls the business.
- The owner of a business is also known as a proprietor and hence the business is also known as a sole proprietorship which means the business has one owner.
- A sole proprietorship, is a type of business entity which legally has no separate existence from its owner.
- Hence, the limitations of liability enjoyed by a corporation do not apply to sole proprietors.
- All debts of the business are debts of the owner.
- It is a “sole” proprietor in the sense that the owner runs the business by himself/ herself i.e. it is a one man business and the owner has no partners.
- The business and the owner are the same which means unlike with a limited liability company there is no continuity after the death of the owner.
- A sole proprietorship essentially means a person does business in his or her own name and there is only one owner.
- A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made.
- A sole proprietor may do business with a trade name other than his or her legal name.
- Has fewer legal formalities to comply with.
- Can keep their accounts private.
- Requires little capital.
- Can offer personalized services to customers
- Can be open for long hours.
- Fewer government regulations.
- It is the easiest business to start.
- Sole trader enjoys the profits alone.
- Quick decision making as the owner retains all control and does not have to consult with anyone else.
• There is a limit to an amount of capital that can be raised.
• There is no continuity after the death of the owner.
• They have unlimited liability which means the owner can lose their personal assets in settlement of a debt incurred by the business.
• Can be subject to estate taxes in the event of the owner’s death.
• There may be poor decision making because the owner cannot consult with anyone and there is little room for specialization.
• Incurs all the losses alone.
To access more topics go to the O Level Business Studies Notes page.