answersLogoWhite

0

A SOLE TRADER is a person who is trading. He is personally responsible/liable for any debts he may incur in the course of running his business. UNDER COMPANY LAW, in most countries, it is possible to form 'a company '. Originally 'companies' were formed by a group of people who pooled some capital in order to set up a business. In company together they each became owners of the 'company', entitled to a share of the profits of that trading unit. As a new entity, the 'company' was/is treated as a 'person', as a legal entity in its own right. The 'company' could trade, buy land, goods, hire labour, make things, sell them etc. It is the same today, investors buy shares in a new company, which the company then uses to establish a new business.

Formerly a company had to have at least two 'members' to be a 'company'. However it is now permitted (in some countries) for only one person to form a 'company'. THE OWNERS' LIABILITY was/is LIMITED to the amount they put into the company when setting it up. Consequently companies formed under this arrangement are called 'limited liability' companies, or, more usually, just 'Limited' companies. Should difficult economic circumstances arise and the company has greater financial liabilities than its assets, there is no recourse to the owners to settle any company debts. The 'company' alone is responsible. If it cannot pay its debts, it must cease trading and be closed, or 'wound up', and any money left, if any, is distributed to creditors in proportion to the amount they are owed. e.g. If the company owes 300 schnickles in total to two suppliers,'A' and ''B', 200 to 'A' and 100 to 'B', but there is only 6 schnickles left, 'A' will only get 4 schnickles and 'B' will get only 2! IN VIEW of the 'protection' offered to owners/investors by this 'limited' arrangement, there are strict additional legal responsibilities placed on 'Limited' companies that do not apply to sole traders. IN CONTRAST with a COMPANY, if a SOLE TRADER's business gets into financial difficulties, he is personally responsible for any debts. He may even be forced to sell his house and personal assets in order to pay creditors. If he cannot pay his debts he can be declared a 'bankrupt'. ----

User Avatar

Wiki User

15y ago

What else can I help you with?

Continue Learning about Finance

What is the difference between a sole trader and a private limited company?

It is the difference between proprietorship firm and a company. In a sole trading company, the risk and rewards are unlimited and solely rests with the proprietor. In a limited company, the owner can not lose more than his contribution to the capital irrespective of the size of the loss of the company.


What are the main differences between a sole trader and a public limited company?

There is only one important and relevant difference : liability/ responsibility for actions. Sole prop is fully and wholly liable whereas the public limited company would be liable to the extent of the Companies Act of respective countries.


What is the liability of sole trader?

a sole trader has a limited liability. :)


Features of private sector?

They are funded by the owners or shareholdersThey have limited liability if they are a limited company such as a LTD and they have unlimited liability if they are a sole trader or partnershipLovee from Mr. Pickles ;)


How are sole traders' accounts different from those of a limited company?

Introduction - Limited Company vs. Sole TraderAt some point into a business venture the answer that most of us will need is whether or not to form a limited company.Often, the desire to incorporate (become a limited company) comes from reasons that are more ego amplified and more to do with our perception of what a business should be rather than some of the most important factors such as overhead and profit.Is being a Sole Trader leaving business on the table?Because businesses feel safer dealing with limited companies over sole traders, the biggest reason being a sole trader is a disadvantage would be that you are going to leave business on the table. Business is usually more stable in limited companies.Even though you could leave some business out there being a sole trader. Being a sole trader may very well be more profitable because there's usually not as much administration needed or overhead to maintain the company.

Related Questions

What is the difference between a sole trader and a private limited company?

It is the difference between proprietorship firm and a company. In a sole trading company, the risk and rewards are unlimited and solely rests with the proprietor. In a limited company, the owner can not lose more than his contribution to the capital irrespective of the size of the loss of the company.


Is Tesco a sole trader?

No. It is a Public Limited Company.


What are the main differences between a sole trader and a public limited company?

There is only one important and relevant difference : liability/ responsibility for actions. Sole prop is fully and wholly liable whereas the public limited company would be liable to the extent of the Companies Act of respective countries.


Is bells fish and chips a limited company?

No it is a Sole trader


What is the difference between a regular company and a limited company?

I can only answer from a UK perspective, but here the difference is mainly to do with ownership. A 'normal' company is classed as a sole trader and so the money of the company and the owner are seen as the same. If the company gets into debt or is sued, the money can be taken from the company and the owner. So the owner could lose their house, personal savings etc. The benefit of being a sole trader is that the legal requirements are pretty straight-forward so it is easier to keep accounts and complete tax returns. A limited company means that the company and the owner are separate. Debts can only be paid from the money the company has - the owner cannot lose their private property. The downside to a limited company is that it is often more expensive to run, as there are more legal requirements, such as accounts need to be published and audited. It can be more tax efficient to run a limited company though.


Is KFC a sole trader or plc?

A privately limited company. check though.!


What are the different forms of business organization?

Sole trader Charities Franchiser Private Limited Company


What are the four types of business organization?

Sole trader Charities Franchiser Private Limited Company


What are 4 types of business organizations?

sole trader charities franchiser private limited company


What are The differences between a private limited company and a public limited company registration and certificate of incorporation?

•1)There is no distinction between business money and personal money for anyone self employed as all business debts are the personal responsibility of the sole trader. •2) Lower corporation tax offered a private limited company advantages over self employment in recent years. •


What is the liability of sole trader?

a sole trader has a limited liability. :)


What are two benefits that sole trader would enjoy when he converts his business to a private limited company?

A sole trader who converts their business to a private limited company can enjoy several benefits. Firstly, a private limited company offers limited liability protection to its owners, meaning that their personal assets are protected in the event of business debts or lawsuits. Secondly, a private limited company is often seen as more credible and professional, which can help to attract investment and increase credibility with customers and suppliers.