Company Structure - Sole Trader
Company Structure - Sole Trader
SOLE TRADER
This is an individual that wants to be a 'one man band' and ultimately responsible for every aspect of running their
business. The major positive factor of being a sole
trader is freedom to make decisions on how the business is conducted without consultation.
It is possible to argue a sole trader can seize opportunity the moment
it appears, without permission of partners or business colleagues and so gain an advantage in the market. Assets within the business belong completely to the owner. This arrangement can suit the lifestyle
of many people, as it is the least formal in respect of compliance. However, the downside is considerable,
for a business owner it can be a very undesirable position and ALWAYS leaves them vulnerable. Therefore,
the following potential problem areas either by themselves or cumulatively
can motivate a move away from being a sole trader:
1) Complete responsibility for
any and all debts of the business
2) Potential
liabilities may increase the debts of the business, e.g. a successful claim
for damages can increase the businesses debt and be a cause of
personal bankruptcy. To lose property/other assets that took hard work to accumulate can be heartbreaking
and with the law supporting the creation of a
'Blame and claim' culture this scenario is becoming more commonplace.
3)
Accounting records of sole traders
are confidential to the owner but in
being so are not a matter of record that can be publicly inspected. This will make
contract work with any
public sector organisations almost impossible as
they demand a degree of transparency in their business contracts with the private sector.
4) The tax regime is relatively unfriendly as
income tax can be charged at the current maximum of 40%. Many sole traders make the mistake of
thinking they will purely
be taxed on the amount of drawings made on the business. WRONG!!!
Income tax is charged on the amount of profit left after deducting allowable expenses (NOT all expenses are tax deductible).
5) Are holidays or time off in emergencies an option
as a sole trader? Can you afford to be away from work without causing loss or damage to the business?
