👤 Sole Traders
Big Idea: A sole trader is a business owned and run by one person. It's the simplest type of business — but the owner takes on all the risk.
Key features
This is one of the most commonly examined topics. Make sure you can state clear features, not just advantages.
- One owner who makes all the decisions
- Unlimited liability — the owner is personally responsible for ALL business debts
- No legal distinction between the owner and the business
- The owner keeps all profits (but bears all losses)
- No legal continuity — if the owner dies, the business ceases to exist
Common exam mistake: Students write advantages instead of features. 'Easy to set up' is an advantage. 'One owner' and 'unlimited liability' are features. Know the difference!
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Advantages
- Easy and cheap to set up — few legal formalities required
- Complete control — the owner makes all decisions without consulting anyone
- Keep all profits — no need to share with partners or shareholders
- Privacy — no legal requirement to publish financial accounts
- Flexible — can respond quickly to market changes without board approval
Disadvantages
- Unlimited liability — personal assets (house, car, savings) are at risk if the business fails
- Hard to raise finance — cannot sell shares, banks may be reluctant to lend to one person
- Heavy workload — one person does everything (marketing, accounts, operations)
- No continuity — the business ends if the owner dies or becomes unable to work
- Limited expertise — one person may lack skills in all areas of business
Maria runs a sole trader bakery. She keeps all profit but if the bakery goes into $50,000 of debt, her personal savings and even her house could be used to pay creditors. That's unlimited liability in action.
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🎯 What exams commonly ask
Sole traders appear frequently in Paper 1 as short-answer questions. You need to know the difference between features and advantages/disadvantages.
Common question types
- 'State two features of a sole trader' (2 marks)
- 'Explain one advantage and one disadvantage' (4 marks)
- 'Define unlimited liability' (2 marks)
Model feature answers
- A sole trader has unlimited liability, meaning the owner is personally responsible for all debts of the business
- There is no legal distinction between the owner and the business — they are treated as one entity in law
- The business has no legal continuity — it ceases to exist if the owner dies or retires
- There is one owner who has complete control over all decisions
If asked to 'state features': give features like unlimited liability, one owner, no legal distinction. Do NOT give advantages like 'easy to set up'. Examiners specifically penalise this confusion.
Top tip: A feature describes what something IS. An advantage describes what's GOOD about it. Two different things! ✅