3. Definition & Objectives
◦ Learning Objectives To understand what a sole trader is
◦
To analyse the advantages and disadvantages of setting up a sole trader business
◦ To evaluate the reasons for starting a business as a sole trader.
◦ A sole trader is an INDIVIDUAL who may or may not employ other people, but who OWNS and operates the business and who
has UNLIMITED LIABILITY. Unlimited liability - this means that the owner has a LEGAL OBLIGATION to pay any losses made by
the business. For a sole trader there is no difference in law between the profits and debts of the business and the finances of
the individual owning the business. Legally they are ONE and the same.
4. Advantages
◦ EASY TO SET UP It is easy to set up a sole trader. A person can set up a business immediately. There are few, if any, forms to fill in or
procedures needed to set.
◦ EASY TO RUN Easier to run than any other types of business. The owner is in sole charge, easier in terms of decision making. They do not
need to get others to agree before making changes
◦ Taxed differently
TAX ADVANT –AGES Taxed differently e.g turn over taxes at 4.5% plus there are no legal fees to set the business up
◦ CONTROL The owner is in sole charge – can make whatever changes they want No meetings required to implement these changes
◦ CAPITAL A business nearly always needs some capital to start trading However, the amount of money needed to set up a sole
proprietorship is often small this in-turn means all the profits of the business are kept by the owner
◦ Effort = reward
◦ The harder the sole trader works, the more successful the business becomes, more can be earned
5. Advantages
◦ Many sole traders have some choice about when they work
PRIVACY Only the ZRA and NAPSA need to know about the finances of a sole trader
Don’t have to publish info. Which could be seen by the public or by rivals
FLEXIBILITY Many sole traders have some choice about when they work They don’t have to ask permission e.g. To have an hour off
6. DIS-ADVANTAGES
◦ UNLIMITED LIABILITY
◦ If the business does very badly and has lots of debts, as a sole trader you must pay off these debts even if it means selling all
your possessions, like a car
◦ LACK OF CONTINUITY
◦ The sole trader IS the business, it may not survive if the sole trader stops work There may be no one for you to sell it off to or
even to pass it on to
◦ The business may stop if the sole trader is ill
◦ ILLNESS The business may stop if the sole trader is ill
◦ They would have to close the shop and consequently could lose income and profits
◦ LONG HOURS Sole traders work really long hours to keep their business afloat
7. DIS-ADVANTAGES
◦ Sole traders carry out jobs in the business themselves
◦
LIMITED SPECIALISATION
◦ Sole traders carry out jobs in the business themselves larger firms can afford to buy in specialist workers, sole traders may not
gain advantages related to specialization Limited economies of scale Higher average costs than larger businesses. Unable to gain
economies of scale – don’t get same discounts
◦ DIFFICULTY OF RAISING CAPITAL
◦ may have to borrow the money from a bank, who may only agree to it if they pay a high interest repayment rate find it hard
getting money to expand the business
8. Registration
◦ Registration of the name of the business will be required if they fail to meet the requirements of S4 of the ROBNA
◦ Has to be done with PACRA at a fee and a certificate will be given once registered
◦ Cost is relatively low and process will last no more than 14-21 working days
◦ Total of less than ZMW400 all thing considered
9. TASK
◦ Create a fictitious personal business that you have to register a business name for then
proceed to fill out the relevant documents at PACRA and prepare a payment order for the total
amount you think it will cost to register that business name.
◦ P.S you can print out your document or submit a digital copy this has to be done by The end of
day tomorrow.
