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Illustrate Your Understanding Of A Sole-Trader & Outline The…
Illustrate Your Understanding Of A Sole-Trader & Outline The Advantages & Disadvantages Of A Sole Trader (45 Marks):
Sole-Trader:
This is someone who sets up, owns and manages a business e.g. hairdresser.
Advantages:
Few Legal Formalities:
One can set up immediately as a sole trader if you use your own name. If you use a different name, you must register this with the register of business names.
Confidentially:
Sole traders do not need to publish their own accounts. Thus, stakeholders such as employees will be unable to use this information to their advantage e.g. seeking a pay rise.
Decision-Making:
Sole traders have complete autonomy. Thus, they can decide what hours to work, who to hire, etc.
Profits:
Sole traders get to keep any profits for themselves. They do not have to pay dividends, unlike other types of organisations.
Disadvantages:
Unlimited Liability:
Should the business go bankrupt the sole trader is personally responsible / liable for all the debts of the business e.g. he / she could lose their home.
Access To Finance:
The sole trader is the only person providing equity in the business. This makes it much more difficult to fund expansion.
Continuity Of Existence:
If the sole trader dies, the business may die with them. As the sole trader gets older, they may find it more difficult to mange the business on a daily basis.
Taxation:
Sole traders pay tax at the PAYE rates of 20% and 40%, as opposed to the corporation tax rate of 12.5%