In a sole trader business structure, who is responsible for the business debts?

In a sole trader business structure, the sole trader is personally responsible for all business debts. This means that if the business incurs debts or faces legal action, the sole trader's personal assets can be at risk to satisfy those obligations. This characteristic is a key aspect of the sole trader model, where the business and the individual are not treated as separate legal entities.

Unlike a limited company, where liability is typically confined to the company itself, a sole trader does not benefit from that protection. The personal liability of the sole trader emphasizes the importance of financial management and risk assessment within this business structure, as any financial mismanagement may directly affect the personal finances of the sole trader.

The concept of personal liability is a fundamental consideration for anyone thinking of operating as a sole trader, explaining why many might opt for other structures, such as limited companies, to protect their personal assets from business-related risks.