Sole-Traders-And-Partnerships Igcse Edexcel

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Exam code:4AC1

Sole traders

A sole trader is someone who owns and controls a business on their own
This type of business business is easier to set up than other types of businesses as there are no legal requirements
The sole trader may employ others to help them in running the business but the sole trader is the only owner of the business

Advantages	Disadvantages
The sole trader gets to keep all the profits made by the business It is quite easy for the sole trader to make decisions as they do not need to consult with anyone else The financial statements prepared by the sole trader are kept private and do not need to be shared with the public Bookkeeping and accounting functions are much easier to perform than for a limited company The sole trader can choose their own hours and place of work	The owner has unlimited liability This means the owner bears personal responsibility for any losses made by the business As the sole trader is the only owner, there is no one else to share the workload or decisions of the business with Sourcing finance may be difficult as the sole trader may have limited funds to invest and banks might be unwilling to lend money to a risky business If the owner is on holiday or becomes sick, they may not make any money and the business may suffer

Advantages

Disadvantages

The sole trader gets to keep all the profits made by the business
It is quite easy for the sole trader to make decisions as they do not need to consult with anyone else
The financial statements prepared by the sole trader are kept private and do not need to be shared with the public
Bookkeeping and accounting functions are much easier to perform than for a limited company
The sole trader can choose their own hours and place of work

The owner has unlimited liability
- This means the owner bears personal responsibility for any losses made by the business
As the sole trader is the only owner, there is no one else to share the workload or decisions of the business with
Sourcing finance may be difficult as the sole trader may have limited funds to invest and banks might be unwilling to lend money to a risky business
If the owner is on holiday or becomes sick, they may not make any money and the business may suffer

Which of the following is not an advantage of operating as a sole trader?

A	Decisions can be made quickly by the sole trader as there is no need to consult with anyone else
B	The sole trader does not have to share any of the profit made
C	The financial statements of a sole trader are published to the public
D	Book-keeping and accounting of the records of a sole trader are simpler

Answer

The correct answer is C. The financial statements of a sole trader do not need to be published to the public. They can be kept private.

A partnership is a business jointly owned by two or more people
A partnership usually consists of between two to twenty partners
Sometimes a partnership is formed when a sole trader wishes to expand or grow their business
- Two or more sole traders may decide to combine their resources to form a new business

A deed of partnership is a document that sets out the terms of how the partnership should operate
- It is also known as a partnership agreement
Its purpose is to help partners avoid disagreements in the future
- If a partnership does not have a deed of partnership then it follows the rules set out in the Partnership Act 1890
It contains information about:
- The money each partner initially invests
- The interest that each partner is allowed on their capital
- The interest that is charged to each partner for taking drawings
- The interest that a partner is allowed if they loan the business extra money
- The distribution of the profits or losses
- The salaries (if any) given to each partner

Advantages	Disadvantages
Forming a partnership is relatively easy as formal permission is not required to set it up Partners have access to additional finance because all partners contribute to raising the capital of the business Partners have access to each other’s skills and expertise For example, a makeup artist might partner up with a hairstylist Partners share the risks of operating the business Partners can cover each other for sickness and holidays	Profits are shared among all partners Unlike a sole trader who keeps all the profits, partners will share it Partners may disagree over key decisions or have different aims for the business Partners may take longer to come to decisions about the operating activities of the business due to them having different opinions All partners are responsible for business debts Even if the debt was only created by one of the partners

Advantages

Disadvantages

Forming a partnership is relatively easy as formal permission is not required to set it up
Partners have access to additional finance because all partners contribute to raising the capital of the business
Partners have access to each other’s skills and expertise
- For example, a makeup artist might partner up with a hairstylist
Partners share the risks of operating the business
Partners can cover each other for sickness and holidays

Profits are shared among all partners
- Unlike a sole trader who keeps all the profits, partners will share it
Partners may disagree over key decisions or have different aims for the business
Partners may take longer to come to decisions about the operating activities of the business due to them having different opinions
All partners are responsible for business debts
- Even if the debt was only created by one of the partners

A limited partnership is similar to a general partnership
The main difference is that some partners will have limited liability
- In this type of partnership, at least one partner has unlimited liability
- Partners with unlimited liability are the ones who manage the business
There are usually restrictions on the limited partners
- They are often thought of as investors or silent partners

A limited liability partnership is different to a general partnership
All partners have limited liability
- Each partner is only liable for the amount of money they invest
The business is a separate legal entity
- This means that its owners and the business are entirely distinct in law
- Its owners cannot usually be held responsible for any financial or legal problems the business may face
All partners are usually involved in the management of the business