Sole Traders & Partnerships (OCR GCSE Business)

An Introduction to Business Ownership

• When an entrepreneur starts a business, they need to consider what kind of legal structure they want for their business

• Their decision will depend upon a range of factors

  • The level of personal risk they are willing to take

  • The advice they receive

  • The level of privacy they would prefer in running the business

Sole Traders

• A sole trader is a business with a single owner who makes all the decisions and gets to keep all of the profit

Diagram: Examples of sole trader businesses

Taxi services, hairdressing, tutoring, as well as handyman and gardening services are often provided by sole traders

They can start trading immediately

• 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)

  • Sole traders are the most common form of business ownership in the UK

    • They are concentrated in the tertiary sector, offering services such as tutoring, home improvements or taxi driving

They have complete control

• Sole traders are in complete control of their business, and get to keep all of the profit it generates

  • The owner can keep all of its financial performance data private, though they must pay tax on their income

They have unlimited liability

• However, sole traders have unlimited liability

  • This 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

Evaluating the sole trader model

Advantages and Disadvantages of Setting up as a Sole Trader

Partnerships

• 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 in relation to setting objectives and making decisions

• Owners (partners) share unlimited liability, meaning their personal assets are at risk should the business get into financial difficulty

• Examples of business that commonly operate as partnerships include lawyers, accountants and doctors

• Partnership businesses often have names that include '& Son', '& Co.'

Evaluating the partnership model

Advantages & Disadvantages of Setting up as a Partnership