Sole traders are entrepreneurs who own their company and take full responsibility for the success of their enterprise. This is an unincorporated entity that is owned by one individual only and is the simplest legal form of a business entity.
There are many advantages of being a sole trader. Starting one is an easy process, as it does not include paperwork or other formalities. They are also not restricted by the amount of time they have to spend on the business, as their work-life balance can be flexible.
Being a sole trader is a great way to use your skills and talents to create your own business. You can also have more control over your life time goals. For example, many sole traders choose the hours they want to work as well as what equipment they would like to buy for their company.
You can also choose who you want as collaborators or employees of your company which means you can hire people purely based on skills rather than social standing like many companies do today
Sole traders generally enjoy a lot more freedom than those who are employed. They can set their own hours and work from home as opposed to being tethered to the office all the time.
There are a few drawbacks of being a sole trader. One of them is that there’s no one to share the workload with. It’s up to the person themselves to take care of all the different tasks that need to be completed. In addition, they don’t have anyone else to turn to for support in times of difficulty or confusion. Another drawback is that there’s no one else who can help shoulder some of the financial burden if it becomes too much for just one person to manage while they’re starting out new business. Sole trader will have unlimited liability, so the owner is responsible for all debts and obligations and potential risks.
The key advantages and disadvantages are listed below:.
Advantages
- No legal formalities to start
- Simple form of organisation
- Greater motivation (Profit goes to one man)
- Personal supervision.
- Easy control and coordination of activities.
- Quick decision.
- Not necessary to publish annual accounts
- No scope for dispute.
Disadvantage
- Unlimited liability.
- Limited sources of finance.
- Limited managerial skill
- No division of labour.
- Small-scale business- no economies of scale.
- Life of this type of business is limited.
To conclude, the simplicity of a sole proprietorship makes this form of business structure extremely popular among small businesses, freelancers, and other self-employed individuals. What begins as a sole proprietorship may be transformed into another, more complex business structure, such as private or public limited company, if the business grows substantially and begins hiring a sizeable number of employees.
