Sole Trader Businesses

Characteristics/Features

• 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 trading name other than his or her legal name.

Advantages

•  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.

Disadvantages

• 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.