Sole trader is the simplest form of company which is used to describe a person working for his/ her interest without having been any formal procedure to be incorporated as limited or unlimited company. The operation can be easily set up and commence immediately. The owner of a sole trader business has full control over the company where the owner can decide the way in which the business can be conducted. The sole trader owner has the authority to restructure and dissolve the company whenever it suits.
This is a type of business which contains greater and personal risk rather than a limited liability company. As a sole trader the owner of the company is responsible for all the aspect of the business. For a sole trade company it is not so easy to attract outside investors or partners which holds back the growth of the business. In terms of size the business is pretty small, but the number of sole trader business is very large in comparison to any other form of business
A sole trader business can be set up easily. No formal procedure is required to start the operation, which can often commence instantly. To set up a sole trade business it is not required to submit accounts or records in companies house.
A sole trading differs from a limited company as follows:
If you are a sole trader then according to the law you are the person working on your behalf or an individual working on your own and working for others as a single person or individual. But in case of a limited liability company it is expected by the law that there is another person who is working along with you in the scope and power of a director of the company.
As a sole trade business you have to keep records of your business and submit your account details, but in case of a limited company it is expected to appoint an accountant and submit the yearly or bi-annual accounts by providing all information about their financial affairs. If a limited Liability Company falls in to bankruptcy or liquidation then it is the company to face not the individuals running the business. But in case of a sole trader companys bankruptcy or liquidation the owner will be held responsible for any difficulties or any unpaid difficulties.
Advantages of a sole trade business:
Easy to set up: The sole trader business is the simplest form business. You can set up your sole trade business easily. You can trade as you are looking for. No formal procedures are required and the business can be commenced immediately
Full control over your business: As a sole trader you have full control over your business and you can take any decision as per your suitability without consulting and taking permission from other partners
Easy to change: A sole trader business can be converted to limited company easily
Easy accounting maintenance: As a sole trader you can keep all the records of your financial affairs
Personal services: To attract your customers you can provide them personal service
Disadvantages of a sole trade business:
Business with greatest personal risk
Difficult to attract outsiders
You may find difficult to attract outside investments