A business can be run on many types. One can choose to for a partnership, private limited company, public limited company or sole trader basis. All of these techniques or rather ways of running a business have their own merits and benefits. In addition to this they also have their own drawbacks. The different modes of running a business depend on the size of the business. If the business is quite large in size then one is sure that it is a public or a private limited company. Even partnership can be there. However if the business is related to any small trade then the most dominant type is the sole trader.

A sole trader is someone who manages and runs his business alone. He does not have to anyone the share of the profit. Whatever is the earning of the business it is completely his. He does not have to split the profit. This implies that the complete burden of the capital is on him. It’s the sole trader who raises the capital for his business initiative. It implies that if the amount raised as the capital is paid completely by him then the owner would show it on the liability side of the balance sheet depicting the loan. Similarly if he decides to take a loan from somewhere else, then it is he only who has to repay the loan and pay the interest on the loan as well.

The greatest advantage of being a sole trader is that the businessman is not answerable to anyone but himself. He can take independent decisions without worrying about the consent of anyone. However there is a disadvantage as well. The sole trader has to face the brunt and the impact of the loss. The best example for a sole trader is an owner of a grocery store.