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TitleSole Trader
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Table of Contents
                            Advantages of a sole trader
Disadvantages of a sole trader
                        
Document Text Contents
Page 1

Advantages of a sole trader
Sole traders benefit from the following advantages:

• Control - Sole traders maintain full control of their business. Running it how they please
without the interference of others.

• Profit retention – Sole traders retain all the profits of their business.
• Private data – Information about sole traders is kept private, unlike that of limited

companies which is necessarily made public after registration with Companies House.
• Specialist – Often a small business, sole traders can offer a more personal service with local

roots and ties. This can be more appealing to potential customers in the local community.
• Personal – Because there is no need to confer with other decision makers, sole traders can

make decisions quickly and act on them swiftly, providing for the needs of their customers.

Disadvantages of a sole trader
Just like any other form of business, being a sole trader can also have its disadvantages.

• Liability – sole traders are not seen as a separate entity by the law. Therefore, they are
subject to unlimited liability. This means if the business gets into debt, the business owner is
liable. In the worst case, this may mean a person risks their home, personal savings and any
other assets they have both in and outside of the business.

• Finance – sole traders often find it difficult to raise finance to fund their business. They may
struggle with expansion in the future.

• Reverse economies of scale – sole traders will be unable to take advantage of economies of
scale in the same way as limited companies and larger corporations, who can afford to buy
in bulk. This might mean that they have to charge higher prices for their products or services
in order to cover the costs.

• Decision making – all decisions must be made by the sole trader. There is no room for help
by others. So the success or failure of the business rests on one person.

partnership is commonly formed where two or more people wish to come to together to form a
business. Perhaps they have a common business idea that they wish to put to the test or have
realised that their skills and talents compliment each others in such a way that they might make a
good business team. Forming a partnership seems like the most logical option and, in some cases, it
is. Running a small business with a reasonably low turnover, a partnership is quite often a good
choice of legal structure for a new business. The way a partnership is set up and run as well as the
way it is governed and taxed often make it the most appealing form of business. However, there are
circumstances where this isn’t the case.

Being a partnership, the business owners necessarily share the profits, the liabilities and the decision
making. This is one of the advantages of partnership, especially where the partners have different
skills and can work well together. However, it can obviously present some problems. Over the
years, many partnerships have turned sour. Family and friends go into business together and end up
falling out on a personal or business level and it all ends badly. This is one of the major
disadvantages of partnerships over other business models, but it’s important to be able to balance
the advantages and disadvantages.

Advantages of Partnership

• Capital – Due to the nature of the business, the partners will fund the business with start up
capital. This means that the more partners there are, the more money they can put into the
business, which will allow better flexibility and more potential for growth. It also means
more potential profit, which will be equally shared between the partners.

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• Flexibility – A partnership is generally easier to form, manage and run. They are less strictly
regulated than companies, in terms of the laws governing the formation and because the
partners have the only say in the way the business is run (without interference by
shareholders) they are far more flexible in terms of management, as long as all the partners
can agree.

• Shared Responsibility – Partners can share the responsibility of the running of the business.
This will allow them to make the most of their abilities. Rather than splitting the
management and taking an equal share of each business task, they might well split the work
according to their skills. So if one partner is good with figures, they might deal with the
book keeping and accounts, while the other partner might have a flare for sales and therefore
be the main sales person for the business.

• Decision Making – Partners share the decision making and can help each other out when
they need to. More partners means more brains that can be picked for business ideas and for
the solving of problems that the business encounters.

Disadvantages of Partnership

• Disagreements – One of the most obvious disadvantages of partnership is the danger of
disagreements between the partners. Obviously people are likely to have different ideas on
how the business should be run, who should be doing what and what the best interests of the
business are. This can lead to disagreements and disputes which might not only harm the
business, but also the relationship of those involved. This is why it is always advisable to
draft a deed of partnership during the formation period to ensure that everyone is aware of
what procedures will be in place in case of disagreement and what will happen if the
partnership is dissolved.

• Agreement – Because the partnership is jointly run, it is necessary that all the partners agree
with things that are being done. This means that in some circumstances there are less
freedoms with regards to the management of the business. Especially compared to sole
traders. However, there is still more flexibility than with limited companies where the
directors must bow to the will of the members (shareholders).

• Liability – Ordinary Partnerships are subject to unlimited liability, which means that each of
the partners shares the liability and financial risks of the business. Which can be off putting
for some people. This can be countered by the formation of a limited liability partnership,
which benefits from the advantages of limited liability granted to limited companies, while
still taking advantage of the flexibility of the partnership model.

• Taxation – One of the major disadvantages of partnership, taxation laws mean that partners
must pay tax in the same way as sole traders, each submitting a Self Assessment tax return
each year. They are also required to register as self employed with HM Revenue & Customs.
The current laws mean that if the partnership (and the partners) bring in more than a certain
level, then they are subject to greater levels of personal taxation than they would be in a
limited company. This means that in most cases setting up a limited company would be more
beneficial as the taxation laws are more favourable

Statutory corporation are public enterprises into existence by a Special Act of the Parliament. The
Act defines its powers and functions, rules and regulations governing its employees and its
relationship with government departments.

This is a corporate body created by the legislature with defined powers and functions and is
financially independent with a clear control over a specified area or a particular type of commercial
activity. It is a corporate person and has the capacity of acting in its own name. Statutory
corporations therefore have the power of the government and considerable amount of operating
flexibility of private enterprises. Few are

• Airport Authority of India

http://www.hmrc.gov.uk/sa/

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