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A sole trader business is a business owned by one person, although the organisation may employ more than one person. The sole trader’s business will trade under the owner’s name or a name chosen by the sole trader. To safeguard against legal proceedings the sole trader should ensure that they don’t use a name registered to someone else.
UK Set Up and Legal Rules
A sole trader business is the simplest type of business organisation and the easiest to establish. There are no legal restrictions affecting the establishment of a sole trader business. A sole trader can keep all the profits. A sole trader does not need to keep accounts, but needs to ensure that they notify the Inland Revenue about their tax liability. To minimise tax liability many sole traders will employ accountants to draw up their final accounts and advise them about tax avoidance (not tax evasion).
Examples of Sole Trader Businesses
Examples of sole trader businesses include small retailers, plumbers, builders, internet entrepreneurs, beauticians, market traders, grocers and butchers. A large number of people setting up a new business for the first time will create a sole trader business.
Although many businesses are created as sole traders, once they reach a certain size the business owners may decide to turn it into a limited business. This is because the owners of a sole trader business are personally responsible for the debts of the business. Their personal money and assets could be used to meet business liabilities. However the owners of a limited business are not personally responsible for its debt and liabilities.