Sole Traders & Partnerships (Edexcel IGCSE Business) : Revision Note

Sole Traders

• When an entrepreneur starts a business they need to consider what form of ownership they want for their business
  

• The main forms of ownership for start-up businesses are

  • Sole trader

  • Partnership

  • Private limited company (Ltd)
    

Diagram showing the main forms of ownership for start-up businesses

Start-ups can choose between operating as a sole trader, a partnership or private limited company

• A sole trader is a business with a single owner who makes all the decisions and gets to keep all of the profit
  

• Operating as a sole trader is the simplest way to start trading immediately

  • Sole trader businesses are often very small with one owner who runs the business on their own (although they may employ people to work in the business)

  • They are concentrated in the tertiary sector, offering services such as tutoring, home improvements or taxi driving
    

• However sole traders have unlimited liability which means that they are personally responsible for all business debts

  • If the business fails any money owed must be paid by the sole trader to avoid bankruptcy

Advantages & Disadvantages of Setting up as a Sole Trader

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
     

Advantages & Disadvantages of Setting up as a Partnership