ZIMSEC O Level Business Studies Notes: 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.

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