Misunderstood Sole Trader Term

[trajan]

It's quite distressing how many lay people misunderstand the term sole trader.

A "definition" given here (and other definitions offered over the internet are no better) lends itself to confusion in many people's minds:

A sole trader is the simplest form of business in Ireland. As the name implies, it refers to one individual who owns and operates a business. A sole trader can have employees to assist with the running of the business, but it is the sole trader who owns the business, taking all the risks and rewards.

Since the new Companies' Act enables an individual to form a limited company and be its sole director and shareholder, people could be excused from concluding that any business that operates as a one-man band might be described as a sole tradership. But of course there is a world of difference both legally and financially between a sole trader and a single director limited company.

Just this week at a PAC Hearing, notables applied the term "sole trader" to the contractor structure advised to high-earning individuals at RTE.
Now it may well be that some of the latter would adopt a sole tradership for efficiencies in regard to property investment and one or two other things. But the reality is that most HEIs in RTE seem to be using a limited company structure to provide their services.

My proffered definition would be something like:

A sole trader is a person whose business profits are taxed on a personal income rather than on a partnership or corporate basis and who is solely and entirely liable for all the debts of that business.

Improvements to this definition welcome.

 

[MOB]

A sole trader is an individual person carrying on a business in which the trading entity is that individual person ?

 

[MOB]

Mind you (speaking as a sole trader) it is immensely helpful to your peace of mind to regard your business as being a separate entity, even when it isn't. If your business can't earn enough to pay everybody the temptation is to put your savings into the business. Been there, done that, bought the T shirt.

 

[trajan]

@MOB

Your definition would be grand before the single member limited company came along. Since then, as this type of business is essentially run by one person and there is no need to establish an objects clause in the Memorandum of Association, the business can do essentially whatever it is commercially capable of. In the understanding of the man in the street, this trading entity is also an individual - albeit one with limited liability and where other non-shareholding directors may be employed.

On the separation of sole trader money from personal money, I know that banks offer (and advocate) separate accounts for the sole tradership as soon as a business name is obtained. That way at least you can see who's supporting whom financially. Single member limited companies have the same problem really as the transfer of owners cash to the company is easy by way of MD loans and repayments.