Advantages and Disadvantages of being a sole trader

Essay by graceneilaneHigh School, 12th gradeA-, June 2006

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Sole traders are the most common form of business organizations. One person provides the permanent finance and, in return, has full control of the business. Sole traders have a variety of advantages and disadvantages.

Firstly, sole traders have limited liability which means that their personal possessions and property can be taken to pay off the debts of the business if it fails. A sole trader organization is easy to set up, as there are hardly any legal formalities. The owner has complete control of the business and is able to keep all profits made. Since a sole trader manages their business completely on their own, they do not have to answer to anybody else as they would in a partner ship situation. They are able to choose times and patterns of working that are suitable for them. The business can be based on the interests or skills of the owner, rather than working as an employee for a larger firm.

Decision purely

However, although the advantages of being a sole trader make this organization structure seem very appealing, it also comes with a number of drawbacks and disadvantages. Sole traders have unlimited liability meaning that all of the owner's assets are potentially at risk. This makes it difficult for the owner to raise additional capital is they are purely dependant on their own savings, profits made and loans for injections of capital. Even though a sole trader can choose times and patterns of working, longs hours are often necessary ti make business pay.

Another major disadvantage is that the owner is unable to specialize in areas of the business that are most interesting. They are responsible for all areas of management. This can be a tough and effort consuming duty. As many sole traders remain small in order to remain...