Advantages and disadvantages of a sole trader?

Answer 1

There are a few advantages and disadvantages of being a sole trader, the main advantage is that you decide where the profit goes, whether you invest it into the business or you keep it yourself.

Another advantage is that the business you own is cheap to set up, whereas Private Limited Companies (LTD's) are expensive to set up and require lots of paperwork.

You also have full control of the business, as the owner has a hands on approach to running the business.

There is one vital disadvantage you have to remember, as a sole trader the business has uunlimited liability. Unlimited liability is where the owner is personally responsable for all debts the business owes. This is quite hard to understand so for example, imagine you owned a business called "Bobs Sandwich Shack" and you set up as a sole trader. You had borrowed £10,000 from the bank to set up, however you still owe the money and your business has failed. You personally have to pay the bank £10,000, they can take your car and sieze your house because you dont have £10,000 to pay back. If you were an Ltd. then the business has to pay the debt and they could take back the premesis from your business but they cant take anything from you.

There are other disadvantages such as you have to work long hours and you may not have skills that are needed for other parts of the business.

In conclusion it is risky setting up as a sole trader as you could be in debt of quite a lot and therefore lose personal assetts.