Trading as a Sole Trader

Advantages

This is the simplest business structure. You can trade in your own name, and manage yourself. The minimum administrative requirements apply. If you have no premises or employees and turnover is below the VAT threshold, in principle before you commence trading you need only tell the Inland Revenue that you are to be self-employed.

Disadvantages

As you trade in your own name, you will have unlimited personal liability. This means that you are liable for any and all debts of the business and your personal assets could be used to meet your business debts.

Other businesses are well aware that sole traders are good for credit only up to the limits of their own wealth. So it may take time to build up good credit terms with your suppliers, and your main source of external funding will be a bank overdraft or second mortgage on your house, or perhaps a loan from a private investor who has faith in you.

You may not wish to trade under your own name. Maybe it is not the most memorable or easily pronounced name, or not appropriate for the image of your new business. As an alternative you can trade under a business name. If you do so, you cannot use certain words and expressions (e.g. ‘University’, ‘Pharmacy’) without specific approval from relevant bodies. You will also need to display prominently upon all stationery etc, and at your place of business, your name and an address for service of documents upon you. Companies and partnerships who use business names have similar obligations.

As there are millions of businesses already operating in the UK, one of the main difficulties in selecting a name for your new business is making sure that you do not inadvertently copy a name already in use in that industry. Doing so can lead to a highly expensive and disruptive civil lawsuit for ‘passing off’ your business as that of the existing business (and so using their goodwill without paying for it) or infringement of a registered trademark.

Our services

If you decide to start trading as a sole trader, for a relatively modest fee we can advise you on compliance with all the legal and practical requirements, minimise your potential liability by use of terms and conditions of business and help you avoid the risk of being sued for ‘passing off’ or prosecuted by Trading Standards.