Sole Traders

What is a sole trader?

• A business owned by multiple people

• A business owned and run by one person

• A large corporation

• A government-owned entity

Answer explanation

A sole trader is defined as a business owned and run by one person. This distinguishes it from partnerships, corporations, and government entities, which involve multiple owners or different ownership structures.

Which of the following is a characteristic of a sole trader?

• Limited liability

• Unlimited liability

• No liability

• Shared liability

Answer explanation

A sole trader has unlimited liability, meaning they are personally responsible for all debts incurred by the business. This contrasts with limited liability, where personal assets are protected.

Which of the following professions might typically operate as a sole trader?

• Software engineer in a large tech company

• Photographer

• Bank manager

• Airline pilot

Answer explanation

A photographer often works independently, making them a typical sole trader. In contrast, the other professions listed usually operate within larger organizations.

What is one advantage of being a sole trader?

• High set-up costs

• Limited control over the business

• Quick and easy to set up

• Shared decision-making

Answer explanation

One advantage of being a sole trader is that it is quick and easy to set up, allowing individuals to start their business with minimal bureaucracy and costs compared to other business structures.

What is one disadvantage of being a sole trader?

• Low level of responsibility

• Unlimited liability

• Short work hours

• High level of job security

Answer explanation

One disadvantage of being a sole trader is unlimited liability, meaning the owner is personally responsible for all business debts. This can put personal assets at risk if the business fails.

How does a sole trader pay taxes?

• Corporate tax

• Income tax on their earnings

• No taxes

• VAT only

Answer explanation

A sole trader pays taxes through income tax on their earnings, as they are considered self-employed. They do not pay corporate tax, and while they may collect VAT, it is not the only tax they are liable for.

Which of the following is NOT an advantage of being a sole trader?

• Being your own boss

• Making all business decisions

• High set-up costs

• A lot of control over the business

Answer explanation

High set-up costs are a disadvantage of being a sole trader, as they can limit the ability to start and grow the business. The other options listed are advantages, highlighting control and decision-making.

What is a potential risk for a sole trader?

• Limited liability

• Unlimited liability

• No competition

• Guaranteed profits

Answer explanation

A potential risk for a sole trader is unlimited liability, meaning they are personally responsible for all business debts. This can put their personal assets at risk if the business fails.

Which of the following is a common challenge faced by sole traders?

• Low responsibility

• Long work hours

• High employee turnover

• Easy access to capital

Answer explanation

Sole traders often face long work hours as they manage all aspects of their business alone, leading to increased workload and time commitment. This is a common challenge, unlike low responsibility or easy access to capital.

What is a typical feature of a sole trader's business structure?

• Multiple owners

• High level of responsibility

• No personal responsibility for debts

• Complex organisational hierarchy

Answer explanation

A sole trader has a high level of responsibility as they are personally liable for all debts and obligations of the business. This contrasts with multiple owners or complex structures, which dilute personal responsibility.