Advantages And Disadvantages of a Sole Trader Over Partnership

Advantages of a sole trader over partnership

In business, a sole trader enjoys all the profits arising from his or her business this is contrary to partnership where the profits are shared among the concerned partners.  The sole trader exercises a degree of control to the business; he/she is his/her own boss and the source of all the decisions governing his/her business. this makes the decision making process faster as compared to partnership where all the partners in the business must be consulted in order to make a decision about the business. Some partners like the dormant partners do not assume active roles in the business. Very few legal formalities are required in the start for a sole trader; a sole trader simply needs a license to commence his/her business activities.  In terms of the initial capital, the start-up costs for a sole trader’s business is low as compared to partnership that requires relatively much money to start with detailed legal formalities.

A sole trader’s business is more flexible; one can therefore change the legal structure of the business in case the circumstances change since the decision to do so lies only with him.  This however, is not applicable with a partnership business.  Partnership is not flexible in its operations. It is formed under the partnership act with stipulated activities that the business should engage in; there is no crossing of the line. A sole trader has very unlimited liability to loans, it has a limited capacity to raise capital unlike the partnership.

Disadvantages of a sole trader over partnership

A sole trader suffers all the losses in the business alone and the life of the business is so limited. In case a sole trader dies, so does the business. In partnership, the losses are shared among the partners and in case of sickness or death of one partner, the other partners can carry on with the business. A sole trader has limited financial sources. They are not treated as separate legal entity by the law.

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