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Questions and Answers
What is a defining characteristic of a sole trader?
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?
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?
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?
Why might a sole trader aim to simply survive rather than focus solely on profit?
What happens to a sole trader business if the owner dies?
What happens to a sole trader business if the owner dies?
Which of the following best describes the financial start-up needs of a sole trader?
Which of the following best describes the financial start-up needs of a sole trader?
How does specialization affect a sole trader with few employees?
How does specialization affect a sole trader with few employees?
What is a potential challenge for small sole trader businesses regarding their purchasing power?
What is a potential challenge for small sole trader businesses regarding their purchasing power?
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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.
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