Starting business as a sole trader may not be appropriate and necessary for all business activities for self employed persons and small business firms.
To better understand if this structure fits your business please review the following advantages and disadvantages:
- Simplest way to start in business.
- Easy to form and easy to terminate.
- Few legal formalities, therefore usually cheaper.
- Relatively little regulation and paper work.
- Low start up costs
- Some tax benefits. Will be taxed at lowest personal marginal income tax rates, and losses in the business can be offset against other personal income.
- Financial Statements do not have to be shown publicly, and do not have to be audited.
- Unlimited liability for owner. One is personally liable for the debts of the business. Personal assets can therefore be at risk.
- Owner is responsible for negligent acts and other wrongs committed by employees within the scope of the business activity.
- Harder to raise capital than other forms of business ownership. Owner often has to give personal guarantee or security over personal assets.
- Working by yourself means that there is a limited amount of skills, experience and management expertise readily available.
- Lack of continuity. When give up the business ceases.
- Often more difficult to sell at a good price. It is usually the case that a lot of the success has been created by the efforts and personal relationship of one person (owner) with the customers.