Business ownership: Sole traders

The idea

A sole trader is a business owned and controlled by one person, although it may employ staff. The owner provides capital, makes decisions, keeps profits after tax, and has unlimited liability, meaning personal assets such as a house or savings can be used to settle business debts. Sole traders are easy to set up, often with modest capital, and retain all profit, which motivates effort. However, they carry full risk, may struggle to raise finance, and can lack specialist skills. For example, a plumber registers with HMRC, opens a business bank account, and trades under their own name; if the business cannot pay a supplier, the plumber is personally liable. Success depends on the owner's skills, market demand, and financial planning.

What earns the marks

• Defines a sole trader as a business owned by one person, who may employ others but retains ownership and control.
• Explains that the owner provides capital, takes decisions, and keeps profit after tax, which can motivate the owner.
• Explains unlimited liability: personal assets can be used to pay business debts, increasing financial risk.
• Explains advantages such as ease of setup, full control, and retention of profit.
• Explains disadvantages such as limited finance, limited specialist skills, and full personal risk.
• Applies the concept to a named or described example, such as a plumber or online retailer, showing how ownership affects decisions and risk.

Common mistakes and how to put them right

• Thinking a sole trader must work alone.

  Put it right: A sole trader can employ staff while remaining the sole owner.

• Confusing unlimited liability with limited liability.

  Put it right: Unlimited liability means personal assets are at risk, whereas limited liability protects personal assets.

• Assuming sole traders cannot keep profits.

  Put it right: After tax, the sole trader keeps all profit, which is a key advantage.

• Believing sole traders cannot raise finance.

  Put it right: They can use personal savings, loans, or retained profit, though options may be more limited than for larger businesses.

Exam tips

• Define the term precisely, then link one advantage and one disadvantage to the case or scenario.
• Use the phrase 'unlimited liability' accurately and explain what it means for the owner's personal assets.
• When evaluating, weigh control and profit retention against risk and finance limits before reaching a judgement.