Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Small Enterpreneurs

  1. Limited Companies
  2. Partnership

Sole Trader – What is a sole trader?

Definition: A sole trader is a company started and run by one individual.

A sole trader - also known as a sole proprietorship or simply proprietorship - is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business.

Sole trading is widespread

A very large proportion of business conducted in the UK is undertaken by the trader working on his own usually providing his own money (capital) to start the business.

The liability of any debts of the business will be down to him. In such a business there will probably be only one person doing this. He would normally deal with the day-to-day bookkeeping and then hand over the records to an accountant who will prepare the final end of year accounts and compute the tax due.

This means that the owner has unlimited liability. It is a "sole" proprietorship in the sense that the owner has no partners (partnership).

A sole proprietor may do business with a trade name other than his or her legal name. This also allows the proprietor to open a business account with banking institutions.

Easy to set up - but difficult to keep a float

The main advantages of a sole proprietorship are that they are easy to start up, they are subject to fewer regulations relative to other types of businesses, the owner has full autonomy with regard to business decisions, and they are easy to discontinue. Another advantage is that one takes all the profits of the business.

A disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a corporation, or, more recently, a Limited Liability Company.