Learnmanagement2 facebook link
Learnmanagement2 twitter link

Sole Trader (Sole Proprietorship)

Related Links

Business Types | Companies and Firms | Partnerships | Co-Operatives | Franchises | Charities |

Sole Trader Introduction

A large number of people setting up a new business will create a sole trader business. A sole trader business (which is sometimes called sole proprietorship) is a business owned by one person, although the organisation may employ more than one person. A sole trader is self employed and is therefore responsible for how well the business does.

Business Profits, Losses and Liabilities

A sole trader is entitled to keep all of the profits the business makes after paying all of the taxes that are due on it. However this also means that are a sole trader is responsible for all losses made by the business; their liability is not limited as would be the case for example for a Limited Company or a Limited Liability Partnership.

The image below shows the things sole traders are liable for and the things they benefit from.

Sole Trader Benefits and Liabilities Diagram

Sole Trader Business Name

The sole trader is free to choose whatever name they would like for their business as long as

To safeguard against legal proceedings the sole trader should ensure that they don't use a name registered to someone else.

Setting Up A Sole Trader Business

A sole trader business is the simplest type of business to establish. Usually there are no legal restrictions affecting the establishment of a sole trader business.

There may be schemes that the sole trader may need/want to register with for example

It is also prudent for sole traders to have the correct business insurance such as public liability, professional indemnity, and buildings insurance.

Sole Traders Business Records And Accounts

A sole trader does not need to keep accounts, but it should ensure that it has registered the business with the relevant tax authority. For example in the UK a sole trader has to register the business with the HMRC's self assessment tax return. Although sole traders do not need to keep accounts they will have to keep

To minimise tax liability sole traders may employ accountants to complete tax returns on their behalf and for advice on how to minimise tax lawfully ( tax avoidance not tax evasion).

Examples of Sole Trader Businesses

The size of a business does not dictate whether a business is a sole trader or not. Sole traders can own a small local business or a large national business.

Sole trader businesses include small retailers, plumbers, builders, internet entrepreneurs, beauticians, market traders, grocers and butchers. Examples of sole traders include global sole trader shoe retailer Kurt Geiger,

Sole Trader Conclusion

Although many businesses are created as sole traders, once they reach a certain size the business owners may decide to turn it into a limited business. This is because the owners of a sole trader business are personally responsible for the debts of the business. Their personal money and assets could be used to meet business liabilities. However the owners of a limited business are not personally responsible for its debt and liabilities.


Studying Business Management visit www.learnmanagement2.com