Which statement best describes a sole trader?

• A. A business owned and run by one person; the owner has unlimited liability for debts.
• B. A business owned by two or more people; partners usually share liability, often jointly and severally.
• C. A company with limited liability; shareholders' liability is limited to their shareholding.
• D. A large company whose shares can be bought by the public on the stock market; liability limited to share capital.

Answer: (A)

A sole trader is a business owned and run by one person, with the owner bearing unlimited liability for the debts of the business. This means the owner’s personal assets could be at risk if the business can’t pay what it owes, because there’s no legal separation between the owner and the business. This setup is different from other business forms: a partnership involves two or more people who share ownership and often liability; a company with limited liability limits each shareholder’s liability to what they’ve invested; and a large public company (public limited company) has shareholders who can trade shares on the stock market, also with liability generally limited to their shareholding. So the description that fits a sole trader is the one that states ownership by a single person and unlimited personal liability for debts.