What Is A Sole Trader? Advantages And Disadvantages.

A sole trader is a person who owns and runs their own business as an individual. A sole trader is also known as a sole proprietor.

The business has no legal identity separating it from its owner. A sole trader is therefore considered to be self-employed. He or she can keep all the business’s profits after paying tax but is personally responsible for any losses if business fails.

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Examples of common sole trader businesses

Some examples of popular sole trader businesses include:

  • graphic designers
  • copywriters
  • marketeers
  • photographers
  • social media consultants
  • welders
  • builders
  • plumbers
  • electricians
  • landscapers
  • carpenters
  • taxi drivers
  • delivery drivers
  • private tutors.

Advantages of a sole trader business

  • The business owner has total control over the business.
  • Less paperwork requirements since the business isn’t a separate legal entity. No need to file a confirmation statement or maintain statutory registers, which include details of individuals who have an interest in the business.
  • Simple business registration.
  • Start up costs are minimal.
  • Offers great flexibility. If, later on, you want to go limited, the process is less complicated than switching being limited company to being a sole trader.
  • Financially rewarding since there are no other owners of the business to share profit with.
  • Fewer tax responsibilities since there is no Corporation Tax to pay or annual accounts to submit to Companies House. All the sole trader need to submit and pay is the Self-Assessment Tax Return annually.

Disadvantages of a sole trader business

  • A sole trader has unlimited liability, which means he or she is personally liable for any losses the business incurs. This means that if you are a sole trader and the business runs into debts, your personal assets such as your car or house could be at risk.
  • Less credibility than a limited company, which will likely affect the clients that you’re able to attract.
  • Difficult to get financing since a sole trader isn’t able to offer shares in their business. However, a sole trader can turn to financial organisations like banks, for financial loans.
  • All business decisions have to be made by the sole owner, which means the success or failure of the business hangs solely on the owner’s ability to make critical decisions.
  • Less free time, because a sole trader runs the day-to-day of your business all by himself. It can be difficult to take a break or a holiday.
  • This business will likely stop if the owner is unable to work, either due to sickness, injury or any other reason.

Sydney Chako

Mathematics, Chemistry and Physics teacher at Sytech Learning Academy. From Junior Secondary School to Tertiary Level Engineering Mathematics and Engineering Science.

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