Term
Sole Trader (sōl trā-dər)
Definition
A sole trader is someone who owns and operates their own business individually without forming a separate legal entity. This person is fully responsible for all the business's debts and obligations.
Where you’ll find it
In the context of business, discussions about being a sole trader typically focus on business structure, such as during the initial setup of a business profile, or in financial and legal settings where personal liability is relevant.
Common use cases
- Starting a new business: Individuals might choose to start as sole traders to keep setup simple and maintain full control.
- Conducting business affairs: Managing all aspects of business operations including finance, decision-making, and bearing potential losses alone.
- Transitioning business types: New entrepreneurs often start as sole traders and may consider moving to a different structure (like an LLC) as the business grows.
Things to watch out for
- Personal liability: As a sole trader, personal assets like your house or car could be at risk if your business falls into debt.
- Financial management: It can be challenging to separate personal and business finances, which is crucial for taxes and personal financial management.
- Scale and growth limitations: Sole traders might find it more difficult to access capital and business opportunities than incorporated entities.
Related terms
- Limited Liability Company (LLC)
- Entrepreneur
- Personal Liability
- Business Registration
- Debt Management
Pixelhaze Tip: Always keep a clear record of all business transactions separately from your personal finances. This simplicity helps not just for tax purposes but also in assessing the financial health of your business accurately.