TOLES ADVANCED SUMMARY

UNIT 15: THE REALITY OF WORKING AS A SOLE TRADER

Business Liability for Debts and Tortious Acts

A sole trader business is unincorporated, meaning that the law does not
distinguish between the business owner and the business itself. The
business owner’s liability is therefore unlimited. If he or she becomes
insolvent and cannot settle debts when they fall due, then there may be
no other option than to sell personal property in order to raise the
necessary funds. This may result in the sole trader voluntarily taking
steps to declare themselves bankrupt, which is the case in most
instances of sole trader bankruptcy in the UK. However, if he or she fails
to do so, any creditor can petition the court for a Bankruptcy Order. In
the event of bankruptcy, a trustee in bankruptcy (ejecutor sindico) will
take legal ownership of the sole trader’s assets, including the sole
trader’s home, and has the authority to sell them to pay the creditors the
sums owner. As well as his or her personal assets being at risk in this
way, a sole trader must also be prepared for the consequences of having
vicarious liability for certain acts and omissions of his or her
employees. If a claimant in a case based on this principle makes a
successful claim, the court may make an award of damages and the sole
trader, as the employer, will be personally liable for this amount.
Insurance
Given these risks, adequate insurance cover should be a priority for all
sole traders. He or she may take out public liability insurance to cover
the cost of any compensation claim which may be brought by any
individual against a sole trader. This provides cover if a sole trader has
intentionally or negligently caused injury or loss to that individual. They
may also choose to take out professional indemnity insurance, which
also covers the legal costs incurred in defending any legal action and in
addition covers any alleged breach of the sole trader's professional duty.
For example, where a sole trader has intentionally or negligently
provided harmful advice. If a sole trader has employees, employer's
liability insurance is a legal requirement to ensure compensation can be
paid to any employee who sues for a job-related injury or illness.

TAKING LEGAL ACTION AGAINST A SOLE TRADER

There is a pre-action protocol which sets out how sole traders can be
pursued for the payment of a debt. The procedure applies to any claim
for non-payment of a debt made against any individual, including any
sole trader. It allows, for example, a relatively long period of time to be
allowed before court proceedings can be issued, thus giving sole traders
time to reply to and defend any claim. In addition, in a Particulars of
Claim, the claimant needs to provide a detailed explanation of the
circumstances of the claim and a comprehensive breakdown of any debt
or debts owed. This is markedly different to the procedure of taking
legal action against any other type of business, such as a limited
company, where less information is needed at the initial stage of starting
legal action and the defendant has less time to reply before court
proceedings can be issued.

Definitions
An unincorporated business A business that does not have a
separate legal personality from the
people who own and run it.

A trustee in bankruptcy A person who takes responsibility

for the financial affairs of
someone who is bankrupt and
where possible pays that person's
creditors.
Vicarious liability Legal responsibility for the
consequences of the harmful
actions of someone else.

Public liability insurance Insurance that covers the cost of


Professional indemnity insurance
Employer's liability insurance
Pre-action protocol
Particulars of claim
More definitions
legal action and compensation
claims made against a business if
a third party suffers an injury or
damage to his or her property.
Insurance which protects
individuals from bearing the cost
of a professional negligence claim
made by a client.
Insurance that will pay out if an
employee becomes ill as
a result of his or her work or is
injured at work.
A series of steps that must be
taken before legal proceedings can
be brought.
A court document in which a
claimant sets out the details of his
or her legal claim.
Chasing invoices To persistently contact customers
who have missed the payment
deadline to try to obtain payment
Juggling family life To try to balance the conflicting
demands of work and family
without making a mistake in either
area
For a pittance Is a small, inadequate amount of
money
The daily grind Describes those parts of a person’s
daily life that are boring and
monotonous, but necessary
The economy crashed Depression
A double whammy It means that two things that have
an negative effect happen at the
same time
Daunting Nervous about doing sth
Pitfalls Hidden things that are unexpected
and have a negative effect