Types of Businesses - Sole Trader

Welcome to part 1 of the Types of Businesses. This post talks about sole traders we also have partnerships, joint stock companies, and co-operatives later on.

Sole trader businesses, like the name suggests, is a business which is owned by one person. This person usually works inside the business and is involved in the day-to-day operations. However, this does not mean that they cannot employ staff.

Sole Trader businesses have unlimited liability, this means that should the business fails the owner's personal assets may be affected by the business' debts. This may mean that if the business fails, the owner may have to sell off his car in order to pay for its debts.

Money for a sole trader business usually comes from his own savings or loans on the trader's house (known as a mortgage).

Advantages:

1. owner has complete control over business and its runnings
2. easy to set up - there is usually much less legal documents to submit
   
3. owner keeps all the profits (less taxes)
4. there is no need to publish a set of annual accounts (you do with registered businesses)
   

Disadvantages:

1. have to compete with larger firms - these firms may have lower costs (called economies of scale- more on that later)
   
2. banks may be reluctant to loan money
3. difficult to take a holiday - as the business often can't function without the owner
   
4. unlimited liability - read above
   

Let's take a look at some examples:

1. convenience store
   
2. hairdresser
3. tourism
4. electrician
5. plumber

All these are usually in the form of sole trader businesses, however they can be other types of businesses as well.