A Level Business Studies Sole Traders Todays Lesson

A Level Business Studies Sole Traders *

Today’s Lesson: • Identify the key feature of Sole traders • Compare the relative benefits and drawbacks of being a sole trader

What is a Sole Trader? Key Term: A sole trader is a business owned and controlled by just one person. This is the most common form of business ownership. Sole traders are usually small businesses. Sole traders may employ other people to work for them.

Sole Traders have “Unlimited Liability” • Having “Unlimited Liability” means that if sole traders do not have enough money in their business to pay for their businesses debts, they would have to use their own personal money to pay for these debts!

Key Features • Owned by one person, although more than one person may work in the business • Controlled by the ‘sole’ owner, the only decision maker • Managed by the owner • Finance comes from the owners personal savings, friends or loans • Profit goes to the one owner, but they are responsible for all debt • Easy to set up – no paperwork – Self Assessment Tax Return filed annually

In your notes create a complete, neat table, like the one shown below, with all the advantages and disadvantages of being a sole trader listed. Sole Traders Advantages Disadvantages

When would it be most appropriate to be a sole trader?

What is a Partnership? Partners are the joint owners of a business. A partnership can have between 2 and 20 partners

What is a Partnership? • Partnerships are most frequently found in professional businesses such as doctors, dentists, veterinary surgeons, accountants and solicitors. • The nameplates outside these organisations are often a good sign that they are a partnership if they have a number of names on them…

Features of a Partnership • Partners in a partnership have unlimited liability • Sometimes partners will want to bring in an extra partner to raise more money. If this partner will just provide finance and not be part of the day-to-day running of the business they are known as a “sleeping partner”. • Sleeping Partners have LIMITED liability, so can only lose the money they put into the business.

Setting up a partnership • Contact HMRC to inform them that you have set up a partnership. • File Partnership Pages on Self Assessment Tax Return

Partnership Act 1890 • If a Partnership decides not to complete any further paperwork they must abide by the Partnership Act 1890. • This act states that everything is shared equally: – – – Profit Loss Decisions Voting Workload

Deed of Partnerships will follow the 1890 Partnership Act unless they set up a Deed of Partnership. A Deed of Partnership will cover; Amount of capital each partner should provide (i. e. starting cash). How profits or losses should be divided. How many votes each partner has (usually based on what proportion of the start up money they put into this business) Rules on how to take on new partners. How the partnership is brought to an end, or how a partner leaves.

In your notes create a complete, neat table, like the one shown below, with all the advantages and disadvantages of being a partnership. Partnerships Advantages Disadvantages

Plenary Sole Trader vs. Partnership • Use the following table to compare and contrast sole traders and partnerships. Add any additional rows you like. Leave plenty of room to answer. Sole Trader Money raised by…? Who gets the profit? Can they share the workload. . ? Who makes the decisions? What happens if the owner is ill? Who takes responsibility? Do you have a range of skills and expertise within the business? Do they have unlimited liability? Partnership