You’re about to enter the big bad world of owning your own business, and you’ve been advised that becoming a ‘sole trader’ is the best option for yourself. But what is a sole trader, and do the positives out way the negatives?
“A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.” - Wikipedia, The Free Encyclopedia.
Reasons to Incorporate as a Sole Proprietor
Control: Becoming a sole trader means you have complete control over the running of your business. The setting up of a sole trader company is relatively easy compared with that of a Limited or Public company, as there isn’t as much information that needs submitting.
Profit: After tax has been submitted the sole trader has the rights to the profits from the business.
Personal Service: The services provided by sole traders are usually much more personal than that of larger companies.
Private: Unlike limited and public companies, a sole trader is not required to submit a copy of the accounts to companies’ house.
Drawbacks of Sole Proprietorship
Liability: by registering as a sole trader, the owner and the business are not classed as separate entities, unlike Public and Limited companies. Therefore, for whatever reason, should the business meet with financial struggle, the owner can lose not only the business but the family home as well.
Money: a sole trader may find it much more difficult to raise funds for the business due to the size of the business, as well as, the implications attached should the business become financially unstable.
Tax: As a sole trader a self-assessment tax return must be completed annually. Most sole traders aren’t very paper work savvy; however there are many companies on hand to assist with tax returns for sole traders.
Common misconceptions: if you register as a sole trader this doesn’t necessarily mean you that you have to work alone. It just means that you are solely responsible for the business.