Sole Trader

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A sole trader business:
is owned by one person
has unlimited liability
is regarded as a separate entity for accounting purposes •is not a legal entity in its own right.
A sole trader is a person who is the only owner of a business. A sole trader enjoys many advantages, including inexpensive start-up costs and a relatively simple process of establishment. The owner makes his/her own decisions and is entitled to all the profits of the business. However, a sole trader must bear all losses and, in law, the owner and business are regarded as the same entity. Thus the sole trader has unlimited liability and personal assets can be used to pay business debts if the business becomes insolvent. Sole trader is the preferred form of organisation for many small businesses because of the personal control and simplicity of setting up this form of business, but the owner has the disadvantage of unlimited liability. •A sole trader is a person who is the only owner of a business. •The accounting entity assumption assumes that the owner and business are separate for the purposes of accounting. This is different from legal entity where the owner is held responsible for the debts of the business. •A sole trader may have to comply with a number of regulations when starting up a business, including obtaining an ABN and registering a business name. •Service and trading businesses differ in what they provide to the consumer. A service business (such as a dentist or plumber) provides services while a trading business (such as a butcher or clothing retailer) sells products. Some businesses provide both services and products
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