Define key term and example Application to business Analysis and evaluation key point. State 2 advantages of Nadir setting up a sole trader? (2) Setting up as a sole trader means Nadir will be his own boss, he will make all the decisions and no- one will tell him what to do. Nadir will get to keep all the profits of his business so he will be working primarily for his own benefit.

Application to business Analysis and evaluation key point. Explain 2 disadvantages of setting up as a sole trader (5) A sole trader has difficulty raising finance from institutions such a banks. This is because sole traders are usually small and do not have many assets to use as security against a loan. Sole traders have unlimited liability so any loans/debts they do amass can result in Nadir losing his personal possessions such as his house, car etc. if he cannot repay them. Sole traders have to rely on themselves to make the correct decisions for their business. This means Nadir must have excellent all round knowledge of his market, products, customers and competitors. This is very difficult and time consuming. Nadir is likely to work long hours which may cause him stress, lowering his job satisfaction.

AO2/3 AO3 Discuss whether it might be better for Nadir to set up as a company rather than as a sole trader (9) For: Setting up as a company will mean Nadir has limited liability so he would only lose the cash he invests in the business and not his own possessions should the business fail. A company would mean Nadir wouldn’t be on his own as he would have teamed up with other shareholders who could contribute ideas, cash and expertise into the business. Against: Setting up as a company would mean Nadir has to share any profits the business makes and make decisions by discussing the issues with the other shareholders, therefore he would have to share power rather than being the sole boss. It is more expensive to set up as a company and the business must then pay corporation tax which may be more than Nadir would pay personally. Evaluation: The key point is that Nadir has a much better chance of making the business a success if he has support from other shareholders. Setting up a business is risky and Nadir is already low on cash. On his own Nadir would place the business in immediate debt which would increase the speed with which the business would need to become profitable, this increases the risk of failure. Therefore Nadir should set up as a company. While he may not like having to discuss decisions with shareholders and share any profits the business makes, it is better for him to have a smaller percentage of a profitable business rather than 100% of a loss making one.