Management Zone > Business law > Setting up business as a sole trader
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02: Personal liability

Sole traders are bound as individuals by civil and criminal law. They carry personal responsibility for all the debts and obligations of the business.

Risks

There are greater risks and difficulties, as compared to other legal forms of business:

  • Unlimited liability for debts incurred by the business.
  • Fewer social security benefits are available.
  • There is no business partner to share the burden of running the business. Possible difficulties in raising finance may restrict business growth.
Insurance to reduce risk

There are several types of insurance that can help reduce the exposure to risks. Some liability for negligent advice can be largely covered by professional indemnity insurance.

  • If the business has customers visiting its premises or has employees, public liability insurance should be taken out.
  • Product liability insurance protects against claims following incidents caused by the products sold.
If there are employees, employers’ liability insurance must be taken out. This protects the trader against claims from employees for accidents or sickness suffered as a result of their employment.Last Updated