Forms of private ownership – the sole trader

This term is used to describe a business wholly owned by one person, although there may be a number of people employed in running the business. Businesses owned by one person are often, but not necessarily, small. Their growth is limited by the amount of capital available and this in turn is limited by the personal resources of the founders and their success in trading.

Sole traders are accountable only to themselves and this can make this form of business ownership very attractive to people who have strong ideas on the way in which they want their business to be run. Added to this there are very few legal restrictions on the formation of a one person business, which increases its flexibility. The owner of the business does not have to consult other people before making decisions which can improve the speed with which the business responds to changing conditions.

The lack of specific business skills on the part of the owner is often considered a drawback but this can be overcome by employing people with these skills or by using the professional services offered by other businesses, e.g. accountants, solicitors, and marketing and advertising agencies.

The sole trader is entirely responsible for the debts of the business. Should it fail and there is insufficient money to pay the debts of the business the owner can be declared bankrupt through legal process. All the property of the business and the personal property of the owner will then be sold to pay the debts and, should the money realized by the sale prove to be insufficient for this purpose, the court will have a claim on the income of the bankrupt until all debts have been paid. The sole trader is thus said to have unlimited liability for the debts and conduct of the business.

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