Joe decided to change his sole trader status to that of a partnership with Saskia as a partner. To what extent do you agree with this decision? Justify your answer.
A sole trader is people who sets up in business by themselves and assumes all responsibility for the decision-making and liabilities of the business.
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Get Help Now!Joe enjoyed the opportunity to be his own boss as a sole trader and had developed a successful business where he made all the decisions on what foods to sell. However with this came a significant amount of pressure and a lack of flexibility, which is highlighted when he had to close the store when he was ill.
In addition, with nobody to share problems with, he put a lot of pressure on himself and worried about the consequences should he not pay suppliers or the bank on time. As a sole trader, he had unlimited liability which meant that in the event of the business failing, the creditors could pursue him personally for the debts of the business.
Saskia’s offer to join the business on a 50/50 basis would mean that he would then have somebody to share the workload with which would relieve some of the pressure that he was under. It would however mean that he would no longer be making all the decisions himself.
Unlimited liability was something that Joe was concerned about and although the business would be stronger with Saskia’s capital injection, if they created a partnership, it would not resolve the problem of unlimited liability.
The only way he could do this would be through converting the business to a private limited company, which would then mean that both Saskia and Joe would benefit from limited liability.
This would mean that the maximum amount they could lose in the event of business failure would be the amount they had invested in the business. This type of structure may also make it easier for them to access a wider range of……………………….
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