Sole trader

A sole trader is a business owned and controlled by one person. It is the simplest type of business ownership, and the owner can trade under their own name or a business name.

Why some people choose it

A sole trader keeps all profits after tax. This rewards the owner directly for their work and gives them an incentive to keep costs low. They have complete control over decisions, such as what to sell, what to charge and where to buy supplies, so they can act quickly without asking a business partner. They can also choose their own working hours, which may help them fit work around family or study.

Being the only owner does not stop you employing staff. Staff work for the business but do not own any of it, so the sole trader stays in charge. Setting up is quick and inexpensive, with little paperwork, and the owner's financial information does not have to be made public.

For example, Amina runs a cake-decorating business from her kitchen. She keeps the profit after tax and decides to take orders only at weekends.

What to weigh up

The main risk is unlimited liability. The owner is personally responsible for the business's debts, so if the business cannot pay a supplier, the owner may have to use personal savings or sell possessions. If Amina owed £300 for ingredients and the business had no money, she would have to pay it herself.

The owner carries the full burden of responsibility and may work long hours, harming their work-life balance. Finance and skills are limited because one person provides the money and the ideas, and a lender may be unwilling to lend large amounts to a business with a single owner. If the owner is seriously ill or dies, the business usually ends because there is no other owner to take over.