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The UK has a huge structure for a sole proprietorship. There has been an increase in the number of sole traders in the past few years and rose to 3.5 million sole traders.

This figure amounts to a total of 60% of the total small businesses. The increase is due to the several advantages attached with starting up a sole proprietorship small business.

The single-handed business

In a sole proprietorship, the sole traders are referred to as self-employed. People who are working as freelancers are mostly opting for a sole proprietorship.

Before getting into any kind of partnership, knowing the pros and cons is crucial to make an informed decision.

Advantages

  1. Your own boss

The biggest benefit of being a sole trader is that you are the boss and solely making a profit for your own self. You can dictate your terms and make your own rules.

Running a business as a sole trader makes you free to make your own rules.

As compared to partnership business, the sole proprietorship is freedom giving. It gives you ownership and directions of your business.

  • No profit-sharing

Another benefit is that you do not share your profits with anybody else. In a partnership, the profits are shared among all the partners. Once the tax is deducted, you get to keep all the profit.

Along with a partnership business, profit sharing is involved among partners.

  • Easy setup

The process to set up your own business as a sole trader is much easier as you do not have to find an exclusive place. In the initial phase, you can even start your business from your home.

You have to complete all the legal formalities to start your own business. You have to inform the HMRC and follow the registration process. The registration process includes filing an online form, and it is done.

  • The startup cost is low

There are no costs involved while registering your business. On the contrary, if you plan to form a limited company, there are certain costs, such as paying to Companies House.

Therefore, the profitable option out of the two comes out to be the sole proprietorship as there are no costs involved in registering.  

  • Maximum privacy

In a limited company, the owner has to provide all the information to the Companies House, which later gets to the public record.

The owner provides details such as basic business details, shareholders details and the director’s details.

This reduces the privacy in a limited company, whereas no such information is required in a sole trader business, maintaining the privacy of your business.

Disadvantages

  1. Unlimited liability

As a sole trader, you do not share your profits with anyone.  Likewise, the liability remains on you. You and your business are treated as one entity, i.e. your business liability is onto you.

The owner is responsible for all the actions of its business. Also, it can be financially pressurizing as there is no protection of assets and personal finances.

For example, if you have borrowed high acceptance payday loans from direct lenders, you are solely responsible for the repayment and other consequences upon non-repayment.

  • Tax may not be efficient

As opposed to sole proprietorship, limited companies are considered better in tax efficiency.

Unlike a limited company director, a sole trader does not have the flexibility to work around the taxes.

  • Difficult to take breaks

When you are the sole proprietor, it isn’t easy to take an off from your own business as there is nobody else to take care of it and make decisions.

Although it is essential to take breaks, still you cannot do it. You have to plan and organize your schedule as per the business requirement and then go ahead with it for even a day off.

  • Sole decision maker

Although decision-making is seen as a quality, with sole proprietorship, it can be a task at times.  It may make you feel pressured and burdened as there is nobody to consult for your business.

Also, there is only one angle to it. You do not get a variety of inputs to have a broader perspective. This stress can sometimes lead to poor decisions that prove to be a loss for the business.

  • Difficult to attract clients

As compared to sole proprietorship, limited companies have more prestige in the market. This prestige helps them to get more clients.

Also, with a lesser advantage compared to limited companies, it can become difficult for the sole traders to attract clients and get business. It makes it difficult to find investors too.

Conclusion

Although a sole trader business is easy to set up, before entering into any kind of business, it is your responsibility to check with advantages and disadvantages.

Once you are aware of both sides, it becomes easy to make an informed decision.

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