Sole Traders & Partnerships

Sole Traders & Partnerships

18th September 2019 1 By Business Integration Bureau

Introduction

This is the smallest business structure known in the business world. These are formed by one person as a sole trader or by two people or more as a partnership for operations within the industry. Most of them are very easy to set up, but only few are easy to run.

How it works

Almost every business start out as the most basic unit either a sole trader (otherwise known as sole proprietor) or a partnership. A sole trader is an individual who is the only owner of the business therefore it is easy to setup and manage with no extra taxes to pay to the authorities. On the contrary companies need to pay extra taxes.

Instead the sole trader files a personal tax return. However there are risks involved as a sole trader has unlimited liability therefore if the business fails the owner must personally pay its debts.

Partnerships have more than one owner therefore as a result each owner can be held liable for all the debts of the business.

  • If the need for more capital increase (and potential debts grow), forming a company may be beneficial.

Pros & Cons

Both sole traders and partnerships structures are excellent for anyone starting out or running a small business - as long as the business stays out of debts because owners are personally liable for the debts.

Sole Trader

  • Tax-efficient way to be self-employed.
  • Simple registration process.
  • Little capital needed.
  • Easy to move from sole trader to company status.
  • No annual business accounts to file.
  • Trade under own name or chosen business name.
  • Keep all business profits after paying tax on them.
  • Unlimited liability: Business debts personally paid.

Partnership

  • Allows for specialization by each partner.
  • Options to set up a limited liability partnership.
  • No annual business accounts to file.
  • More partners mean more capital for growth.
  • New partners bring new business skills.
  • Profits and control of the business is shared.
  • Each partner pays taxes for their own of profits.
  • If partner leaves, new partner is needed.
  • Profits and control of the business is shared.
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