A sole trader is a type of business structure where an individual operates and owns a business independently. In a sole trader business, there is no legal distinction between the owner and the business entity itself.
One of the key characteristics of a sole trader business is that the owner has unlimited liability. This means that the owner is personally responsible for all debts, liabilities, and legal obligations of the business. In the event of business debts or legal issues, the owner’s personal assets may be used to cover these obligations.
The owner of a sole trader business is entitled to all the profits generated by the business. However, they are also personally responsible for any losses incurred. This contrasts with other business structures where profits and losses are shared among multiple owners or shareholders.
Sole traders have a high degree of flexibility and autonomy in managing their business. They have the freedom to make decisions without the need for approval from partners or shareholders.
Depending on the jurisdiction, there may be specific legal requirements and regulations that sole traders must adhere to. This can include business registration, licensing, and compliance with industry-specific regulations.