What is a sole trader?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
A sole trader is an individual who owns a business alone, rather than through a company or a partnership. business.gov.au says the owner keeps full control of their assets and the business's decisions, and is legally responsible for every part of the business, including any debts and losses.
The term describes how a business is owned, not its size or its trade. A tradesperson, a consultant and a shopkeeper can all be sole traders; what they have in common is that each owns the business personally rather than through a company or a partnership.
In the books, the business's transactions are still kept apart from the owner's personal ones, so its income, costs and debts can be seen on their own. Instead of share capital, a sole trader's balance sheet shows the owner's equity, often in a capital account, which rises with money the owner puts in and with profits, and falls with drawings and losses.
Up-to-date records of what the business owes, such as supplier bills, card balances and loans, matter as much as the sales figures, because they show the owner the full picture of the debts the business is carrying.
In Australia
business.gov.au says a sole trader is legally responsible for every part of the business, from its debts and losses to its day-to-day decisions. It also lists unlimited liability among the structure's features, which it says puts all of the owner's personal assets at risk if the business gets into trouble.
Its page on companies draws the contrast. Unlike the owner of a sole trader business or a partnership, it says, a member of a company is not liable, in that capacity, for the company's debts beyond any amount still unpaid on their shares if the company calls for it, although a director found to have breached their legal obligations may be held personally liable.
Common mistakes
- Leaving supplier bills, card balances or loans out of the books because the owner expects to pay them from personal money.
- Setting up company-style accounts for the owner, such as share capital or a director's loan account, when a sole trader has no shares or directors.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Sole trader
business.gov.au, Australian Government. Current at 16 October 2026, released 14 October 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Company
business.gov.au, Australian Government. Current at 16 October 2026, released 14 October 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.