Lena's street on a Tuesday: Lena's bakery opens at seven. Across the road the state primary school opens at half past eight, and the number 12 bus, run by the city council, stops outside both.
Three organisations, all busy, all useful. Ask who owns each one and why it exists, and they fall into two groups.
The bakery is owned by Lena. She opened it with her own money and she keeps what it earns. Businesses owned by private individuals or private companies make up the private sector, and their main aim is usually to make a profit. The school and the bus are owned and run by the government, which here means the state and the city council. They make up the public sector, and their main aim is usually to provide a service to the public, paid for mostly out of taxes.
Private sector: the bakery
- Owned by private individuals or private companies
- Lena put her own money in and keeps the profit
- Main aim: usually profit. A bakery that keeps losing money closes
- Also: the supermarket, the flour mill, the café next door
Public sector: the school and the bus
- Owned and run by the government: the state or the city council
- Paid for mostly by taxes
- Main aim: a service to the public. The bus runs on Sundays even though it loses money
- Also: the state hospital, the police, the public library
Where does a sole trader sit? In the private sector, at its smallest end. A sole trader is a business owned and run by one person, and Lena's bakery is one. The rest of this micro is about what that one-owner form means for her.
Two questions sort any organisation: Who owns it: private people, or the government?
What is it mainly for: profit, or a service?
A private business can still do good, and a public service can still charge a fee. Ownership and main aim decide the sector, not price and not size.
Free preview
This is the free notes preview
You're reading the free notes. Aimnova Pro unlocks the full study experience — and you can try it with your first topic free to keep:
- FlashcardsLock in vocabulary and key terms with spaced repetition.
- Practice questionsAnswer exam-style questions and get instant AI marking.
- Mock exams & past-paper vaultSit full mocks and see exactly how examiners award marks.
- Personalised study planA daily plan built around your exam date and weak areas.
One owner, in every sense: Lena owns the bakery alone. She decides what to bake, when to open and what to charge. She keeps every dollar of profit, and every dollar of loss is hers too.
And in law there is no bakery separate from Lena. The bakery's debts are Lena's debts.
A sole trader is a business owned and run by one person. It is the simplest kind of business and the most common: the plumber, the hairdresser, the market stall, the freelance designer. The features below are true of every sole trader, whether the owner likes them or not.
| Feature | What it means | For Lena |
|---|---|---|
| One owner (sole ownership) | One person owns the whole business. | Nobody else has a share of the bakery. |
| Full control | The owner makes every decision and runs the business. | Lena sets the menu, the hours and the prices on her own, and quickly. |
| Keeps all the profit, bears all the loss | Nothing is shared with anyone else. | A good December is all hers. So is a bad February. |
| Not a separate legal entity | In law the owner and the business are the same person. | A contract with the bakery is a contract with Lena. |
| Unlimited liability | The owner is personally responsible for all the business's debts, with no limit. | If the bakery cannot pay, Lena's savings and house can be taken to pay. |
| No continuity | The business ends when the owner dies or stops. | If Lena retires, there is no bakery to hand on unless someone starts again. |
| Easy, cheap and quick to set up | Minimal paperwork compared with other types of business: register with the tax office and trade. | Lena was baking a week after she decided to. |
| Privacy | No duty to publish accounts, so little to answer for to outsiders. | Nobody but Lena and the tax office sees what the bakery made. |
| Usually limited finance | The money is the owner's savings and what a bank will lend one person. | The oven came from Lena's savings and a small loan. |
The bakery owes $30 000
a bad year
- The oven loan, three months of rent and the flour supplier are all unpaid
- The people owed money (creditors) want paying
The bakery's own money
goes first
- The till, the bank account, the van
- Together they cover $12 000
Lena's savings
go next
- Her own account, not the bakery's; in law there is no difference
- They cover another $10 000
Lena's house
goes last
- The remaining $8 000 is still Lena's debt
- With no limit, anything she owns can be sold to pay it
The feature that runs through the others: 'Not a separate legal entity' is the one to understand, because it is why Lena has unlimited liability, why the bakery ends when she does, and why its profit is taxed as her own income.
Say it plainly: the bakery is Lena. Whatever the bakery owes, Lena owes.
Get feedback like a real examiner
Submit your answers and get instant feedback — what you did well, what's missing, and exactly what to write to score full marks.
Three ways to look at one fact: Lena has full control of the bakery. That is a feature: it is what a sole trader is.
It is also an advantage
- She decided to add sourdough on a Monday and was selling it on the Saturday, with nobody to consult.
And it is a disadvantage
- Every decision, every mistake and every five o'clock start is hers alone.
A feature says what a sole trader is. An advantage says why that is good for the owner. A disadvantage says why it is bad. Most of the good and most of the bad come from the same short list of features, seen from different sides.
Feature: what it is
- One owner with full control
- Keeps all the profit
- Not a separate legal entity, so unlimited liability
- Easy and cheap to set up
- Usually limited finance
Advantage: why that is good
- Decisions are quick, with nobody to consult
- Every dollar of profit is Lena's
- Privacy: no accounts to publish
- Trading within a week, for almost nothing
- Flexible hours, because Lena sets them
Disadvantage: why that is bad
- Everything lands on one person, which is stressful and lonely
- Every loss is Lena's too
- Her savings and house are at risk for the bakery's debts
- Limited capital, so growth is slow
- No continuity: the bakery ends with Lena
Both at once: Unlimited liability is the clearest case. As a feature, it is simply true of every sole trader. As a disadvantage, it is the reason Lena lies awake in a bad month: a $30 000 debt can reach her house.
It has no advantage side. Most other features have both, and which side matters depends on what is being asked.
Two of the features are comparisons. 'Easy to set up' and 'limited finance' are true of a sole trader compared with other types of business, which take more paperwork to start and can raise money in ways one person cannot. Keep the comparison in the sentence: easier and cheaper to set up than other forms; harder to raise finance than other forms. Without it the words say nothing.
The disadvantages nobody sees from outside
- She has to be good at everything. Lena is baker, accountant, buyer and cleaner, so she has to be good at every part of the business, not just the bread.
- Nobody to share the load. There is nobody to cover a sick day and nobody to share a hard decision with.
- She can look less professional. A hotel chain may rather sign a contract with a company than with one woman and an oven: a sole trader can look less professional to a large client.
How this comes up: Short knowledge questions on the paper with a case: state two features of a sole trader, state two advantages of operating as a sole trader, state two disadvantages, define unlimited liability. Two marks each.
Two marks means two items, a few words each. No description, and nothing from the case is needed.
The three short shapes
- State two features of a sole trader. Owned by one person; unlimited liability. Done.
- State two advantages of operating as a sole trader. Easy and cheap to set up; the owner keeps all the profit.
- State two disadvantages of operating as a sole trader. Unlimited liability; lack of continuity.
The trap: the wrong side, or the same thing twice
- Features are facts. Asked for features, write facts: 'one owner', 'unlimited liability'. 'It is great being your own boss' is an opinion about a fact, and it is not a feature.
- Advantages are good facts. Asked for advantages, the fact must be a good one: unlimited liability is a feature and a disadvantage, never an advantage.
- Two different features. 'Unlimited liability' and 'personally responsible for the debts' are the same fact, so together they count once. Pick two different features.
- Say what it is compared with. 'Easy to set up' or 'hard to raise finance' need their comparison: easier than other types of business, harder than other types of business.
State two features of a sole trader.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.