The Definition of Sole Trader

by Kate Barber; Updated September 26, 2017

A sole trader is a type of business entity that allows one person to be solely responsible for the financial dealings of the business. The benefits and disadvantages of this responsibility are many and should be weighed carefully.

Meaning

Another term for a sole trader is a sole proprietor. This term refers to all self-employed people and owners of business. Specifically, it refers to the person responsible for the daily management of the firm and for its profits and losses.

Liability

Unlimited liability is the distinction of a sole trader. This term refers to the person’s responsibility for all profits and losses that are separate from those of the business.

Advantages

A major benefit to becoming a sole trader is that this form of business ownership has fewer regulations than other systems of ownership do. The most significant benefit is that a sole trader is not responsible for corporate tax payments.

Disadvantages

Because the sole trader is the sole source of funding, the major disadvantage can be a lack of funds.

Privacy

As a sole trader who is free of the disclosure requirements of a corporation, you are not required to publicly disclose any financial documents except to taxation authorities.

About the Author

Kate Barber has been working as a freelance writer for over five years and currently lives in Santa Barbara, California. She worked as a writer for "Humanus," a journal on human rights, and is a graduate of New York University with a Master of Arts degree in economics.