Private Sector Businesses: Sole Traders (AQA AS Business): Revision Note

An introduction to the private sector

• The private sector includes all businesses that are owned and run by individuals or groups — not the government

• These businesses aim to make a profit and operate in competitive markets

• Common types of private sector businesses include:

  • sole traders: one-person businesses (e.g. a local plumber or hairdresser)

  • private limited companies (Ltd): owned by shareholders, often family or friends, with shares not sold to the public

  • public limited companies (Plc): larger businesses that sell shares on the stock exchange (e.g. Tesco, Apple)

• Non-profit organisations (e.g. charities) can also be part of the private sector if they are independent from government and funded by donations or revenue from services

• The private sector contrasts with the public sector, which includes government-owned organisations such as the NHS or the BBC

The problem of unlimited liability

• Unlimited liability means the owner of a business is personally responsible for all its debts — even if it means using their own money or possessions to pay them off

• There is no legal distinction between the owner and the business

  • Sole traders and partners are fully responsible for all debts owed by the business

  • They are also legally responsible for unlawful acts committed by those connected to the business

• As a result, unincorporated business owners may have to use their own personal assets to pay debts or legal fees

  • E.g. a sole proprietor may need to sell their home to pay creditors if their business fails

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 skill set, including:

  • money skills: set sensible prices, keep basic records and monitor cash coming in and going out so the business does not 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 (such as late payments or lost inventory) and find quick fixes

Advantages and disadvantages of sole trader businesses

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