Cambridge O Level Business Studies · Syllabus 7115 · Understanding Business Activity
Sole Trader
What is Sole Trader?
A business owned and controlled by one person, who provides the capital, keeps all the profit and carries unlimited liability for the business's debts. It is an unincorporated business, meaning it has no legal identity separate from its owner.
This definition is part of the Understanding Business Activity chapter in Cambridge O Level Business Studies.
Sole Trader in context
Business activity is the combining of scarce resources — land, labour, capital and enterprise — to produce goods or services that satisfy human needs and wants. Because resources are scarce and wants are not, every choice carries an opportunity cost: the next best alternative forgone. Cambridge O Level Business Studies (7115) Chapter 1 covers why business activity exists, how a business is classified by economic sector and by ownership sector, how size and growth are measured, the forms of business organisation from sole trader to public corporation and what each means for ownership, control, finance and risk, and the objectives that businesses set and that their stakeholders judge them by.
Examiner tips on Sole Trader
- Applying it in a case. Opportunity cost is not only about money. A sole trader who works Saturdays gives up leisure; a factory that switches a production line to product X gives up the output of product Y. Name the specific alternative from the case, not “something else”.
Questions students ask about Sole Trader
What is the difference between a sole trader and a partnership?
A sole trader is a business owned and controlled by one person, who provides the capital, keeps all the profit and carries unlimited liability for the business's debts. A partnership is owned by two or more people who share the capital, the decisions, the profits and, in most cases, unlimited liability. Both are unincorporated, with no legal identity separate from their owners. A partnership brings more capital and shared skills, but control, profit and risk are shared too.
Does limited liability mean a company cannot fail?
No. Limited liability limits the shareholders' personal loss to the amount they have invested in shares, because an incorporated company is a separate legal person from its owners and their personal assets are not available to the company's creditors. The company itself can still fail, and shareholders can still lose that investment in full. Limited liability is created by incorporation, which is why sole traders and most partnerships have unlimited liability instead.