Sole Trader and Partnership

Question 1

Public Sector
Definition:

Answer 1

Organisations owned and
controlled by the government.

Question 2

Public Sector
Examples:

Answer 2

NHS, Police, Education,

Question 3

Private Sector
Definition:

Answer 3

Businesses run by private individuals

Question 4

Private Sector
Examples:

Answer 4

sole traders, partnerships, Ltd.’s and Plc.’s

Question 5

Sole Trader
Definition:

Answer 5

Businesses owned by one person who has
unlimited liability. Other people can be employed but
there is only one owner.

Question 6

Unlimited Liability
Definition:

Answer 6

Means that the owners of a business are
responsible for all of the debts of a business. Personal
belongings may need to be given up to pay the debts of
the business.

Question 7

Advantages:
Sole Trader

Answer 7

☑ Profit ➔ can keep all profit / no need to share
☑ Making decisions ➔ without consulting others / will
be speedy ➔ e.g. of decision
☑ Own boss ➔ free to choose / any example
☑ Independence ➔ can work at own pace etc.
☑ Easy to set up ➔ few formalities ➔ therefore
cheaper to set up
☑ Have a job ➔ may not be able to find one elsewhere

Question 8

Disadvantages:
Sole Trader

Answer 8

☒ Unlimited liability ➔ responsible for debts of the
business
☒ More responsibility ➔ relies heavily on their own
ability to make decisions ➔ may work long hours and
have limited holidays, as there is no one to cover
them
☒ Limited sources of resources

Question 9

Partnerships Features

Answer 9

• A business that is owned by between
  2 and 20 people
• A business that is owned/run by at
  least 2 people
• An unincorporated business
• A business with unlimited liability

Question 10

Advantages:
Partnerships

Answer 10

☑ Raise more capital than sole traders ➔ individuals may not be able to raise sufficient capital alone
☑ Extra skills / expertise in business ➔ may be able to specialise in aspects of business to provide a better service
☑ More people to make decisions ➔ more considered
approach to running the business ➔ more ideas which may lead to success
☑ Shared responsibility and more flexibility ➔ reduce pressure on individuals such as duties / working hours
➔ able to take time off ➔ debts / losses can be shared
☑ Easy to set up ➔ may involve no legal requirements ➔ Deed of Partnership possible

Question 11

Disadvantages:
Partnerships

Answer 11

☒ Partners may disagree ➔ time used up in discussion➔ decisions take longer
☒ Profits will be shared ➔ compared to a sole trade where the owner can keep all profits to themselves
☒ Some partners may not work as hard as others ➔ may demoralise/ lead to arguments
☒ Continuity ➔ also applies to sole trader ➔ but effect on surviving partners if one leaves
☒ The owners will still have unlimited liability ➔ the partners will be held responsible for the debts of the business

Question 12

Deed of Partnership
Definition:

Answer 12

A legal document which
is an agreement between partners
that sets out the rules of the
partnership, such as how profits will
be divided and how the partnership
will be valued if someone wants to
leave.

Question 13

What does the deed of partnership contain

Answer 13

It contains:
* Names of partners
* How profits are to be shared
* Suggests how it can help overcome partnership
problems
* Shows proportion of ownership to determine
distribution of profits
* Shows duties/responsibilities of partners
indicating who does what
* Conditions for end of partnership to show
distribution of assets
* Liability of partners in case of business debts

Question 14

Arguments in favour of a partnership:

Answer 14

☑ Potentially more capital ➔ ideal for example
if the business needs to find new premises as
the current one is becoming too small
☑ A new partner brings new skills
☑ Possibility of specialisation
☑ More ideas/problems can be shared
☑ Share workload ➔ presents an opportunity
to reduce working hours/take holidays.
☑ Avoids need to employ somebody ➔ a risk
➔ new staff need training ➔ not sure of their
capabilities

Question 15

Arguments against forming a partnership
(staying as a sole trader):

Answer 15

☒ Original sole trader will lose their
independence
☒ Will need to share profits ➔ though possible
to generate more
☒ Could result in disagreements/quarrels.
Though many family businesses are
successful others end in acrimony
☒ Decision making potentially slower ➔ need
to consult/less flexibility
☒ By employing a new worker the original sole
trader could retain their independence and
also reduce their own working hours
☒ If after a short time the new partner finds
they want to leave the partnership, then the
original sole trader is back to square one