Business Ownership: Sole Traders and Partnerships (Cambridge (CIE) A Level Business): Revision Note

Sole traders

• When an entrepreneur starts a business, they will often start operating as a sole trader

  • This is a business with a single owner (although they may still hire employees)

Examples of sole trader businesses

• Sole traders often run their business alone and so need to have a varied skillset, including:

  • Money skills: set sensible prices, keep basic records and monitor cash coming in and going out so the business doesn’t run out of money

  • Great customer service: be friendly, reliable and helpful so people come back and tell their friends

  • Simple marketing and selling: spread the word on social media or in the local area and feel confident asking for the sale

  • Problem-solving and resilience: stay calm when things go wrong (like late payments or lost stock) and find quick fixes

Evaluating a sole trader setup

• Over time, sole traders may change the form of business

  • By forming a partnership or becoming a private limited company with limited liability they can access more funding or provide more security for the owners

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

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

Evaluating a partnership setup