Commerce: Sole Trader

Sole Trader

Features

• Is owned by one person who provides all the capital.
• Their motive is to make profit.
• Tends to be small in size.
• Has few legal formalities.
• Easy to form as they require little start up capital.
• Controlled and run on a daily basis by the proprietor himself.
• Family members may sometimes provide labour.
• Have unlimited liability.
• Has flexible opening and closing hours.

Sources of capital

• Own personal savings.
• Borrowing from friends and relatives.
• Loans and overdrafts from commercial banks.
• Mortgage loans from Building Societies.
• Retained Earnings.
• Hire Purchase buying.
• Leasing of fixed assets.
• Purchasing goods for resale on credit.
• Forming a partnership of a private limited company.

Advantages

• Requires little start up capital.
• Has fewer legal formalities.
• Is easy to run and control.
• There is close supervision of workers.
• Operates for longer hours which may increase sales.
• Offers personal service to customers.
• There is quick decision making.
• The business can quickly adapt to changes.
• The owner enjoys profits alone.
• Overhead expenses are usually lower.
• The business affairs can be kept private.
• Provides employment for the owner.

Disadvantages

• Has unlimited liability.
• Bears the losses and debts alone.
• Decision making may be poor since there is no one to consult.
• There is no room for specialisation.
• There is limited room for expansion due to limited sources of capital.
• There is no continuity after the owner dies.
• Prices of goods are usually high.
• The trader may be overworked.
• Cannot borrow money from financial institutions due to lack of collateral.

To access more topics go to the Commerce Notes page