Business Notes: Sole Traders and Partnerships

A sole trader is the simplest form of business organisation, being owned and run by a single person, although he/she may employ other people. This form of organisation has several advantages:

Total control of the business by the owner.

Easy to start up – few forms to fill in and to start trading the sole trader does not need to employ any specialist services, other than setting up a bank account and informing the tax offices.

Keep all the profit – as the owner, all the profit belongs to the sole trader.

A partnership is a business where there are two or more owners of the enterprise. The advantages of a sole trader becoming a partnership are:

Spreads the risk across more people, so if the business gets into difficulty then there are more people to share the burden of debt.

Partner may bring money and resources to the business (eg. capital).

Partner may bring new skills and ideas to the business.

The main disadvantages of turning a sole trader into a partnership are:

Have to share the profit.

Less control of the business for the original owner, who has to allow his/her new partners a say in how the business operates.

Disputes over workload.

Problems if partners argue over the direction of the business.

Esjae x

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