What is a sole trader?
In this business structure the person is self-employed, allowing them to remain in control even though others may be employed. Profits made by the business can be kept by the sole trader himself but he must pay income tax on them. Those who start small and intend to stay small are best opting for this type of business structure.
Sole traders can work from home and aren’t usually required to register their company, file accounts or have an annual audit, except for the usual requirements for income tax, PRSI and VAT purposes. In the circumstance where the business name is different from the proprietor’s name, it has to be registered with the Register of Business Names.
What are the advantages of sole traders?
As briefly mentioned already the ownership and control remain with the one self-employed person. This can be advantageous as you are not obliged to report to anyone else within your business and won’t have to forfeit any control of your business. Another advantage is the sole trader gets to keep all profits. This can be an incentive to work harder for many people. Sole traders’ administration is easier due to the few legal obligations to administer.
What are the disadvantages of sole traders?
Seeing as all profits remain with the sole trader, they are also personally liable for all bills, debt and losses of the company. Because of this it is essential for a sole trader to understand and monitor cash flow. Sole traders often find it difficult to raise finance to fund their business. Sole traders also don’t benefit from succession which means that it won’t continue in the case of death of the sole trader or bankruptcy for example. As a sole trader you are required to self-assess the amount of tax you pay every year. You also have legal responsibility for the business so it is important to get insurance.
We will be coming back to other types of business structures so be sure to check back. For the moment we have created a company structure guide that covers the different structures and why you need to think about your company structure.
