1.

Introduction

This lesson will cover content included in the main topic: Entrepreneurship.

Answering the question, ”who owns what?” has been one of the most important questions in
business since the start of civilisation. This is because running a business comes with a lot of
rewards and potential risks, so it’s best to not leave things up to chance.

Over the centuries, humans have developed different forms of ownership for businesses based on
the needs of businesses and the economy. Before we unpack the different forms of business
ownership, you can watch an interesting video below about how business ownership has evolved
throughout human history. (Don’t worry, you don’t need to learn this history, but it’s important to
understand why the topic of forms of ownership matters).

In this module and the next one, we will look at some forms of ownership mentioned in the video
above, including sole traders (or sole proprietorships), partnerships, close corporations and
public/private companies.

In this lesson, we will start our journey with a form of ownership we are already familiar with,
sole trader.

By the end of this lesson, you will be able to:

 Identify the characteristics of a sole trader.

 Identify the advantages and disadvantages of a sole trader.

2. Sole trader

A sole trader, also known as a sole proprietorship, is a business with only one owner. This means
that one person is liable for the business, makes all the decisions and can keep all the profits. Sole
traders can employ others to help with the business, but a sole trader is the only owner.
The characteristics of a sole trader are as follows:

 The business has only one owner who has full control over the business.
 A sole trader is a legal entity. This means that the owner and the business are not
separate. The owner has unlimited liability and is responsible for the business, which
includes its practices and debt.
 The owner, as a sole trader, is responsible for paying personal income tax on the
profits of the business.
  The business has no continuity if ownership is not transferred. If the owner retires, dies
or sells the business, it stops existing. This is because the owner and the business cannot
be separated.

Operating as a sole trader has advantages and disadvantages. Let’s look at both.

Table 2: Advantages and disadvantages of a sole trader.

Advantages Disadvantages
1. 1.

It’s easy to start and register a sole trader The owner has unlimited liability, and
business. The owner only needs a trading license. can be held personally liable for the debts
of the business.

Figure 3: A sole trader can start with just a stall Figure 8: Sole traders can end up in
next to the road. court.

2. 2.

You can start a sole trader business with very If the owner is absent, they either need to
little money. get help or close the business. This means
they lose income if they cannot work or
get sick.
 Advantages Disadvantages

Figure 9: Sickness and death are

Figure 4: With a little cash a sole trader a grow. unforeseen realities that affect business.

3. 3.

The owner has full control of the business and It is difficult to borrow money from
can adapt to change quickly, without having to financial institutions and sole traders
consult others. usually have to rely on their own capital.

Figure 10: Banks don't trust easily.

Figure 5: A sole trader's decisions are final.

4.
4.
The owner needs good managerial skills
The owner keeps all the profit. to run the business. Running your own
business alone can also be very stressful.

Figure 6: No need to share earnings.

 Advantages Disadvantages
Figure 11: It's all up to the sole trader.

5.

A sole trader is usually a small business

5. and there are not always extra profits to
put back into the business.
The business does not need financial statements
to be audited.

Figure 12: Without investing money the

business can't grow.

Figure 7: No one is looking over a sole trader's

shoulder

3. Activity: Advantages and disadvantages of a sole trader

We’ve already looked at some advantages and disadvantages of being a sole trader. Watch the
following videos of two different entrepreneurs who started their own businesses. Both of them
have had very different experiences.
 

4. Conclusion and References

Conclusion
You have reached the end of the lesson. By now you should have a firm understanding of sole
traders. In the next lesson, we will look at the characteristics, advantages and disadvantages of
partnerships.

1. Introduction

This lesson will cover content included in the main topic: Entrepreneurship.
In this lesson, we will learn about our second form of ownership: partnerships.
By the end of this lesson, you will be able to:

 Identify the characteristics of a partnership.

 Identify the advantages and disadvantages of a partnership.

2. Partnerships

A partnership business has more than one owner, who are called partners of the business and
have agreed to manage the business together.

The characteristics of a partnership are as follows:

 Partnerships can be used for both formal businesses e.g. law firms or for informal
businesses e.g. street vendors.
 Each partner contributes something of value to the business e.g. capital, expertise, etc.
 Not all partners are directly involved in the daily running of the business, but all partners
are involved in making big decisions that affect the future of the business.
 A partnership can be entered into verbally or in writing, using a partnership agreement.
 Partners pay income tax on their profits.