WHAT IS A SOLE TRADER?

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​A sole trader is the simplest form of business structure - in which one individual runs and owns the entire business. This business structure is especially popular amongst those going into business on their own for the first time. It is relatively easy and inexpensive to register. ​

The advantages of a sole trader:
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• It's quick and simple to get started: setting up a sole trader remains the quickest and simplest way to get your business up and running. It involves the least paperwork.
  
  
• Low set up costs: 
  The cost to register a sole trader is less than the cost to incorporate a company. Additionally, there's usually less of a need for professional advice as the start up process for a sole trader is simpler, so these costs are reduced, if not, eliminated. 
  
  
• You are in control:
  As a sole trader, you’re in full control of your business, in the ultimate sense, you are "your own boss”. You don’t need to consult with other directors or shareholders, take account of their views or compromise your own vision for the business, meaning you can develop it exactly as you choose.
  
  
• Fewer statutory obligations: 
  A sole trader has fewer statutory filing responsibilities than a company. A company has to file documents at the Companies' Registry any time certain changes occur in the company such as changes in directors or secretaries. Additionally, a company has to file annual returns every year. A sole trader is not obligated to do any of this.
  
  
• There's flexibility:
  You own the business alone therefore you can make decisions alone. This makes it quick and simple to make changes to the business to adapt to changing circumstances.
  
  
• Later on you can become a company:
  ​Even if someone starts as a sole trader business it is possible for him to change the business into a company if he chooses to do so in the future. 

​The disadvantages of a sole trader:
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• There is unlimited liability: 
  Sole trader businesses are not recognised as a separate legal entity. When you operate your business as a sole trader, therefore, its liabilities and debts are your liabilities and debts. If the business fails with debts to be paid, not only will you lose your income but you’d also have to pay the money owed from your own assets, whether or not they’re connected to the business. Because liability is unlimited, you could lose personal assets such as your home as well as potentially face bankruptcy.
  
  
• Limited access to finance:
  As a sole trader, it can be very difficult to raise capital to expand the business.
  
  Banks, in particular, often prefer the greater accounting transparency that comes with a company compared with the more private nature of a sole trader. Because of this and the perceived greater risks often involved, banks may be unwilling to lend large sums to sole traders. Whether they do advance loans, the terms offered may not be as generous as those provided to a company.
  
  Most other forms of long-term finance will not be available to sole traders. Unlike a company, they cannot issue shares or other securities in exchange for investment.
  
  
• Less attractive to the public:   
  ​A sole trader may not appear to have the prestige of a company. Even though in many cases it’s completely inaccurate, the public perception of sole traders is often of smaller, less long-standing and less professional businesses than their company counterparts. Professional credibility may in many cases lead you away from operating as a sole trader.
  
  
• Lack of continuity: 
  If a sole trader dies or retires, the business will come to an end. This lack of continuity makes it difficult for a sole trader to attract investors. 
  
  Something else that needs to be considered is what happens if the sole trader is sick or has an accident and therefore can’t work. A sole trader working alone will be faced with the question of how to fulfill existing contracts.

Important Notice: This post does not constitute or provide legal advice. Always consult with a suitably qualified attorney-at-law on any legal problem or issue.

Law For All is managed by the Aurora Chambers Legal Practice.

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