One person is the sole owner of the business. A sole trader is free to decide the type of business activity he wants to start. The businessman is required to take prompt decision. A sole trade business can be started without performing any legal formalities. If you own a business with a partner or if your business is set up as a corporation, it is not a sole trader business. Privacy Policy 8. The sole proprietor is obligated to cover any payments resulting from the loans but does not need to share the business profits with creditors. During the lifetime of this person, a sole trader can sell or give away any asset for the reason that the business is not lawfully separate from the sole trader. Being a sole trader has most of the characteristics that being in a partnership has, the most important one is the unlimited liability, even though it’s not exactly the same. “The sole-trader is a person who carries on business of his own, that is, without the assistance of a partner. Historically, it appears that business first started with this form of organisation. No distribution channel from the producer to the consumer can be successful without the active involvement of sole-traders. Sole traders are a distinct legal entity, operating as one type of UK business structure. It is the competence of the proprietor which determines the future of the business. As a sole trader, you will become liable for paying a number of different taxes, including: Income Tax, which is a tax paid on certain types of income. A doctor and a lawyer will be required to have direct contact with his patients and clients. As a sole trader, you will pay Class 2 and Class 4 National Insurance. Since the liability is unlimited and is to fall on one person, he should have a cautious approach. The wide spread use of other forms of organisation has not eliminated sole proprietorship; rather it continues to be most popular form of organisation in every country. A customer may have his own liking for getting his clothes stitched. Some partners are not individuals but corporations or other groups.. Partnerships may be temporary, e.g. Following points will explain the legal position of a sole-trade business: (i) There is no specific law under which this business requires registration etc. When the scale of operations is small then capital requirements will be less and sole proprietorship is the most suitable form of organisation. The person who does the business is called the sole trader or sole proprietor. Dr. Martens Airwair boots became an iconic cultural icon and their popularity was the catalyst for the founding of the retail chain that trades as SOLETRADER. He takes all profits and bears losses, if any. As a sole trader you can set up a company under your own name or choose a business name, but you will be recognized as a company owned and operated by a single individual. A sole trader is an independent owner of a business. This business is started by the initiative of a single person. Conclusion: Sole Trader vs Limited Company. A sole proprietor can take immediate decisions as warranted by the situations. This form of organisation acts as a constraint on the monopolistic tendencies of other forms of organisation. Social Desirability of Sole Proprietorship: The limitations of sole proprietorship have necessitated the development of other forms of organisation. A sole trader means that if you own the business, you will earn all the profit of the business. A Sole Trader is someone running a business as an individual, there is no legal distinction between the owner and the business. A consumer wants to buy his day-to-day requirements from the nearest place. The consumers are provided goods at low prices under this type of form. Sole traders and partnerships refer to the the simplest forms of business organisation. At least two persons are required to form a … Instead of looking for jobs outside, this is a form of organisation which helps people to create work for themselves. A small trader comes in direct contact with the consumers. Some important definitions are discussed to have a clear view of sole trade form of organisation: “The individual entrepreneurship is the form of business organisation on the head of which stands an individual as the one who is responsible, who directs its operations and who alone runs the risk of failure.” According to Haney, the business is in the hands of one person who is not only responsible for its management but also for its risks. A sole trader business is also referred to as a sole proprietorship. This form of organisation is set up for the following objectives: Individuals have small surplus funds with them. (vii) Owners and business exist together: In sole-trade business there is no separate existence of the business with the owner. TOS 7. A sole trader can start the business as per his will and similarly can dissolve it as per his discretion. Small units provide ancillary service to big units. With the development of science and technology the needs of the business also increased and new forms of organisation developed. The owner of a sole proprietorship is called a sole proprietor. Sole ownership is a sort of enterprise that is owned and run by one person and within which there’s no legal distinction between the owner and, therefore, the business entity. A sole-trade business is set up by one person with his own resources. In order to avoid concentration of wealth in a few funds, sole trade business helps in its distribution among large number of people. Though customers want to purchase their day to day necessities at their nearest place but they will prefer to visit the main shopping centre to purchase durable goods like T.V., fridge, washing machine, music system etc. Of their 36 stores in the UK 24 trade in shopping centres and on high streets as Sole and Soletrader and 12 trade in outlet centres, 5 of which are operated by the McArthur Glen Group. Business secrets are very important for small business. Generally, sole proprietorship is started at a low scale and investments made are also less. A sole trader is a person who sets up the business with his mm resources, manages the business himself by employing persons for his help and alone bears all the gains and risks of the business. Jilly's owners plan to retire her following her win. There are other types of business … Boro and Redmond Ltd (then based on Kings Road, London) gave the first order for Dr. Martens Airwair boots to R Griggs and Son. The business to be carried on should also be allowed by law. The individual may employ others but they remain the sole owner of the business. He prepares the blue prints of the venture and arranges various factors of production. In certain partnerships of individuals, particularly law firms and accountancy firms, equity partners are distinguished from salaried partners (or contract or income partners ). Soletrader began trading in the 1940s under the original company name of Boro and Redmond Ltd and was involved in wholesaling and importing footwear from Spain and Eastern Europe for supply to retailers. This article has only scratched the surface regarding the differences between a sole trader vs limited company. The success of large-scale business is also linked to the help provided by small business units. A sole proprietor may obtain loans from creditors to help finance the firm’s operations, but these loans do not represent ownership. 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