Advantages And Disadvantages Of A Sole Trader

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There are different types of businesses in which Peter can set up into. Firstly he can become a sole trader in which he may set up a business in either his own name or a business name. By becoming a sole trader you have complete control of the business and all profit which is made belongs to you; however there are advantages and disadvantages to becoming a sole trader.
The main advantages of becoming a sole trader are that the owner has independence and can run the business however he likes without having to involve others in the decision making process. Another advantage of becoming a sole trader is that you are allowed to have an overview of the whole business rather than looking over a certain part if in a partnership or a company. The disadvantages of becoming a sole trader are that the owner will have an unlimited liability of for the debts of the business so this means that if the owner was to go into bankruptcy then the owner is liable which means that the debts he was owing to the creditors might be paid off by the sale of the owners’ personal assets within the business and assets outside the business so they are putting everything at risk. Decision making is another disadvantage because all the decisions are made by the owner because there are no partners in which to make decisions with so all responsibility relies on the sole trader so the owner is liable for anything which goes wrong.
Partnership is also what he can go into but he will need to find someone who will go into partnership with him as two people are required in order for it to be a partnership. The partnership Act of 1980 defines a partnership as ‘the relation which subsists between persons carrying on a business in common with a view of profit’.
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...shareholders can sell or transfer shares easily which is also another advantage of setting up a PLC. The disadvantages include it is rather expensive to set up a plc; also there are more statutory reforms to conform to unlike a LTD. Other disadvantages include decisions taking long to be made and profit. Profit is seen as a disadvantage because it is split between greater amounts of people.

I recommend that he sets up a LLP as the LLP is easy to set up and there isn’t any need for any written agreement, another reason as to why he should set up an LLP is because of its separate legal entity so the members will not be liable for the debts of the LLP. A limited liability partnership also has a favourable tax treatment and the members are taxed on their shares which make profit. When a new member is introduced there is no tax charged is when the interest rates change.

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