According to Peterson and Plowman : “ As sole proprietorship is a business unit whose ownership and management are vested in one person. This individual assumes all risk of loss and failure of the enterprise and receives all profits from its successful operation”. A sole trader describes any business that is owned and controlled by one person, although they may employ workers, e.g. a newsagent's shop. Individuals who provide a specialist service like hairdressers, plumbers or photographers, are also sole traders. Sole traders do not have a separate legal existence from their owner. As a result, the owners are personally liable for the firm's debts, and may have to pay them out of their own pocket. This is called unlimited liability. Advantages
* The firms are usually small, and easy to set up.
* Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost. * The wage bill will usually be low, because there a few or no employees. * It is easier to keep overall control, because the owner has a hands-on approach to running the business and can make decisions without consulting anyone else.
* The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts. * Sole traders often work long hours and find it difficult to take holidays, or time off if they are ill. * Developing the business is also limited by the amount of capital personally available. * There is also the risk of unlimited liability, where the sole trader can be forced to sell personal assets to cover any business debts.
Partnerships are businesses owned by two or more people. A contract called a deed of partnership is normally drawn up. This states the type of partnership it is, how much capital each party has contributed, and how profits and...