Sole Traders & Partnerships (Edexcel IGCSE Business)

• When an entrepreneur starts a business they need to consider what form of ownership they want for their business
  
  
• The main forms of ownership for start-up businesses are
  • Sole trader
  • Partnership
  • Private limited company (Ltd)
    
    

Diagram showing the main forms of ownership for start-up businesses

Start-ups can choose between operating as a sole trader, a partnership or private limited company

• A sole trader is a business with a single owner who makes all the decisions and gets to keep all of the profit
  
  
• Operating as a sole trader is the simplest way to start trading immediately
  • Sole trader businesses are often very small with one owner who runs the business on their own (although they may employ people to work in the business)
  • They are concentrated in the tertiary sector, offering services such as tutoring, home improvements or taxi driving
    
    
• However sole traders have unlimited liability which means that they are personally responsible for all business debts
  • If the business fails any money owed must be paid by the sole trader to avoid bankruptcy

Advantages & Disadvantages of Setting up as a Sole Trader

Advantages	Disadvantages
Easy and inexpensive to set up The owner has complete control over the business and can make all decisions All profit belongs to the owner Simple tax arrangements Can provide a flexible, personal service that meets customer needs	The owner is personally responsible for debts the business incurs Limited access to finance as lenders consider them risky Limited skillset of the owner/entrepreneur may limit business growth Long hours, hard work and lots of responsibility for the owner No business continuity. The business often dies with the owner

• A partnership involves two or more people joining together to own a business
  • They are relatively easy to set up with relatively few legal formalities
  • Partners may choose to draw up a deed of partnership which states the formal rights of each partner including
    • The amount of capital contributed by each partner
    • How profits or losses are shared amongst partners
    • The procedures for dissolving the partnership and taking on new partners
    • The level of control each partner has
      
      
  • Examples of business that commonly operate as partnerships include lawyers, accountants and doctors
     

Advantages & Disadvantages of Setting up as a Partnership

Advantages	Disadvantages
Easy and inexpensive to set up and run as there are few legal formalities Shared responsibilities and decision-making More skills and knowledge means partners can specialise in their area of expertise Increased access to finance and capital	Partners have unlimited liability for debts incurred by the business In some countries it is possible to set up as a limited liability partnership which removes this risk   Partners' decisions are legally binding on all owners There is potential for disputes between partners Profits are often shared equally regardless of a partner's contribution