Ownership and Control: Sole Trader

Questions and Answers

What is a defining characteristic of a sole trader?

Operates as a corporation

Has limited liability

Has multiple owners

Is a sole proprietor (correct)

What does unlimited liability mean for a sole trader?

The owner can claim bankruptcy without consequences

The owner has personal responsibility for all business debts (correct)

The business can easily raise capital

The owner is protected from business debts

Which of the following is a disadvantage of being a sole trader?

Limited decision-making power

Difficulty in gaining economies of scale (correct)

Access to large capital investments

Ability to specialize in one area

Why might a sole trader aim to simply survive rather than focus solely on profit?

To maintain a certain lifestyle Signup and view all the answers

What happens to a sole trader business if the owner dies?

There is a lack of continuity Signup and view all the answers

Which of the following best describes the financial start-up needs of a sole trader?

Not a great deal of capital is needed Signup and view all the answers

How does specialization affect a sole trader with few employees?

People will have to perform multiple roles Signup and view all the answers

What is a potential challenge for small sole trader businesses regarding their purchasing power?

They struggle to capitalize on bulk buying benefits Signup and view all the answers

Study Notes

Sole Trader Overview

A sole trader, also known as a sole proprietor, is a single owner of a business.
The sole trader is fully responsible for all business decisions and outcomes, bearing any personal liability.
Unlimited liability means that personal assets may be at risk if the business incurs debts.

Advantages

Low capital requirement for starting a business, making it accessible for individuals.
Offers complete control over business decisions and operations for the owner.

Disadvantages

Limited ability to achieve economies of scale due to purchasing constraints, leading to higher costs for goods.
Small enterprises often lack specialization; owners and employees may have to juggle multiple roles rather than focusing on specific strengths.

Other Considerations

Profit isn't the sole aim for many sole traders; they may prioritize decision-making autonomy and desired lifestyle.
Aiming for business survival can be a significant goal rather than just profitability.
Lack of continuity poses a risk; the business may cease to exist upon the owner's death, highlighting vulnerability.

Description

This quiz explores the concept of a sole trader, also known as a sole proprietor. It covers their responsibilities, the notion of unlimited liability, and the advantages of this business structure. Test your knowledge on the ownership and risk associated with being a sole trader.