private-sector-businesses-sole-traders as

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Exam code:7131

An introduction to the private sector

The private sector includes all businesses that are owned and run by individuals or groups — not the government
These businesses aim to make a profit and operate in competitive markets
Common types of private sector businesses include:
- sole traders: one-person businesses (e.g. a local plumber or hairdresser)
- private limited companies (Ltd): owned by shareholders, often family or friends, with shares not sold to the public
- public limited companies (Plc): larger businesses that sell shares on the stock exchange (e.g. Tesco, Apple)
Non-profit organisations (e.g. charities) can also be part of the private sector if they are independent from government and funded by donations or revenue from services
The private sector contrasts with the public sector, which includes government-owned organisations such as the NHS or the BBC

Unlimited liability means the owner of a business is personally responsible for all its debts — even if it means using their own money or possessions to pay them off
There is no legal distinction between the owner and the business
- Sole traders and partners are fully responsible for all debts owed by the business
- They are also legally responsible for unlawful acts committed by those connected to the business

As a result, unincorporated business owners may have to use their own personal assets to pay debts or legal fees
- E.g. a sole proprietor may need to sell their home to pay creditors if their business fails

When an entrepreneur starts a business, they will often start operating as a sole trader
- This is a business with a single owner (although they may still hire employees)

Example	Description
Ella’s Eco-Cleaning	19-year-old Ella McSweeney runs a domestic cleaning service using biodegradable products
Ben’s Bike Repairs	Ben is a mobile cycle mechanic covering suburban south-east London
Taste of Kerala	Larissa is a street-food vendor at weekend markets and music festivals

Sole traders often run their business alone and so need to have a varied skill set, including:
- money skills: set sensible prices, keep basic records and monitor cash coming in and going out so the business does not run out of money
- great customer service: be friendly, reliable and helpful so people come back and tell their friends
- simple marketing and selling: spread the word on social media or in the local area and feel confident asking for the sale
- problem-solving and resilience: stay calm when things go wrong (such as late payments or lost inventory) and find quick fixes

Advantages	Disadvantages
Easy and inexpensive to set up The owner has complete control over the business All profits belong to the owner Simple tax arrangements Decisions can be made very quickly so the business can react swiftly to market change High levels of personal satisfaction	Unlimited liability, meaning the owner is personally responsible for any debts the business incurs Limited access to finance and capital Limited skill sets Difficult to take time off from the business

Over time, sole traders may change the form of their business
- By forming a partnership or becoming a private limited company with limited liability, they can access more funding or provide more security for the owners