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Business Studies

Business structure

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Owners have to decide on the best legal structure for their business - opting to run as sole traders, partnerships or private limited companies. As the business expands and starts to employ hundreds of staff in many locations, it may decide to become a public limited company or to offer franchises.

Sole traders

A sole trader describes any business that is owned and controlled by one person - although they may employ workers. Individuals who provide a specialist service like plumbers, hairdressers or photographers are often sole traders.

A hairdresser trimming someone's hair

Sole traders do not have a separate legal existence from the business. In the eyes of the law, the business and the owner are the same. As a result, the owner is personally liable for the firm's debts and may have to pay for losses made by the business out of their own pocket. This is called unlimited liability.

Advantages

  • It is easy to set up as no formal legal paperwork is required.

  • Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost.

  • As the only owner, the entrepreneur can make decisions without consulting anyone else.

Disadvantages

  • The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts.

  • Sole traders often work long hours. They may find it difficult to take holidays or time off if they are ill.

  • They face unlimited liability [Unlimited liability: Owners are personally liable for all debts. ] if the business fails.

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