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Legal Position of Sole Traders

Discuss about the Local Authority and Energy Service.

Tina has to be advised about her legal position as the sole trader of her garage in relation to Brad, who was her employee and was made in charge when Tina was on sick leave for 4 months. But he enjoyed the position so much that he did not refrain from ordering oil even when he was told to do so. The issue also arises in respect to Paul a salesman appointed by Tina, who sold a Wagon worth $19,000 from Tina to Fred, knowing that Fred was willing to pay $25,000 for the wagon and therefore he secretly tried to make some money out of the transaction.

In a sole trading (Salmon, 2016) business, an individual is alone responsible for all the legal aspects of the business which means any kind of loss or debt will be barred by the owner. This form of business (Tricker & Tricker, 2015) is simple and not expensive type in Australia. In this case Tina is a sole trader of her garage and she has the power to make all the decisions regarding her company and she has employees to help her. There are certain legal (Banerjee, 2015) positions that are enjoyed by the sole proprietorship (Whitehead, 2014) business, they are the following:

  • The sole trader has the power to start as well as end the business at their own discretion because there are no legal formalities needed for setting up such a business structure.
  • A sole trader is obliged by the general laws of the land there is no separate provisions made to govern them.
  • There is no difference between the sole trader and the sole trading business.
  • There is unlimited liability (Lawson, 2014) in a sole proprietorship from of business; due to no difference can be made among the business and its personal assets.

The proprietor has the rights (Sturtz, 2013) and freedom to decide the duration of the working hours of the company, the goods or services it will be providing to the consumers, the place of its operation, and also has the rights to decide the contracts it would enter into without needing consultation from anyone else. The sole proprietor has full control and with such control has full liability too. Liabilities include financial obligations that have to borne by the sole trader. Banks provide loan to the sole traders as personal loans.

Since all the liability of the company is with the sole trader, it sometimes becomes very difficult. The Court also considers the sole trading business and the trader the same, so if a situation arises of being sued it will be the same to sue the sole trader or the business. The sole proprietors all private assets (Chappell & Dunn, 2015) like their home, car, bank account and so on are considered as risk. Since the sole trader and its business are seen as a single entity by the government.

Liability of Sole Traders

In this case, Tina had made Brad in charge of her garage while she was away for 4 months on a sick leave (McLaughlin, 2013). Brad was instructed by Tina to order petrol while she was away. Later, when she was back she took charge of everything. Brad, ignored this fact and still ordered petrol as he used to before from Caltex. While, Tina had made a more profitable negotiation with BP, for ordering petrol. Tina being the boss of her garage has the right to make all the decisions regarding the management and the business of her garage. Her managerial duties start from the day her business started and would end with the last day of the business. Thus, Brad was liable to Tina.

Later in this case when Paul, a salesman of used vehicles (Marx, 2015) appointed by Tina, sold Tina’s Wagon to his neighbour for $25,000 and paid Tina only $19,000. Tina was very furious. But she being the owner had rights to make all the decisions and thus, Paul would be liable to Tina for his act.

The sole proprietor of a company has all the right and powers to decide anything in relation to the company, without getting any consultation from any third person. Tina had to comply with federal and the state business license. Tina should have basic idea about the laws of the Sole trading companies and have the access to attorneys in case of any legal action takes place in the company in relation to the customer of the garage or the employees of her garage. Consultation with a lawyer becomes mandatory when a legal issue is derived in the company. An owner of a sole trading company has various types of task’s and responsibilities that they have to fulfil starting from the incorporation of the company to the managing of the company. Depending on the type of the trade the role and the responsibility of the trader keeps changing.

In a sole proprietorship form of business, the profits are taxed as personal taxes. Although there are certain advantages, like the formation of such companies are easy and quick due to its simple structure. There is no need for accounts to be audited or file any annual returns and management is very easy as there is only one owner. The profits made are only the sole traders share alone. Despite such advantages, there are certain disadvantages too; there is a risk due to the liability being limited. The sole trader becomes personally liable for all losses incurred. There is no tax exemption in such form of trade. The scopes to borrow funds in a sole trade are very limited. The owner has to usually give in his own private assets, to get personal loans from the bank.

Legal Advice to Sole Traders

Legal advice has to be given to the three partners, George, Sara and Mary who own an company called, Computer Solution along with their forth partner Simon. There has been breach of contract by Simon who made transactions worth $12,000 which was not agreed by the partners. They had only agreed to have the authority to enter into contacts up to $10,000 without each other’s consent.

In a partnership (Selwyn & Emi, 2014) form of company, there are two or more owners who form a company to share the profit and loss of a company. The rights and duties of the partners are governed (Glasby & Dickinson, 2014) by the partnership agreements, which may be in writing or implied. The partnership form of business is also governed by the Partnership Act.  A written agreement is always preferred to avoid disputes among the partners in a firm. The partners enter into an agreement and are all liable under the obligations made in the agreement.

Similarly, Simon, Sara, George and Mary too entered in a partnership agreement, which has stated that every partner had authority to enter into transactions worth $10,000 on behalf of their company. And any transaction (Thaler, 2014) beyond $10,000 would need to be approved by all the partners. The issue that is being discussed is the potential (Snopko, 2014) liabilities and the legal rights partners have with each other in a company. The major acts to be followed by the partners are Partnership Act 1895, Limited Partnership Act 1990 and the Corporations Act 2001. One of the most prominent cases on partnership is Cox V Hickman. The Partnership Act 1895 describes the meaning of partnership; there should be no deceiving (Day, 2016) and cheating of the partners among each other. The outcome of the case, Cox V Hickman, it was stated that on the basis of shared (Hannon & Bolton, 2015) profits one cannot decide whether partnership exists. Thus the court had supported Cox when he disregarded the liability. In order to me a partnership firm the firm should meet all the requirements needed under the Act.

Every partner in the partnership firm has to act in accordance with good faith towards each other and not take any kind of advantage through misrepresentation or concealment with each other. There is duty of loyalty (Williams, 2014) which prevents the partners from making any profit secretly at the cost or expense of the firm for their personal use. If a partner indulges in promoting any kind of competing business, in this case the partner shall be held liable for the damages (Fooks & Gilmore, 2014) made by him. The partners must also note the limitations adopted by the majority of their partners, in regard to the partnership details. For instance, if the majority of the partners function in a company and decide that the sales of the company cannot be made on credit basis, the partners should obey the limitation.

Partnership Form of Business

Thus, in this case, too, the four partners were bound by the Limitation Act, and could not enter into any transactions beyond $10,000 with each other’s approval. Simon did not obey the limitation made by the partners and entered into a transaction worth $12,000 with Sunstar Computer Hardware Ltd. thus in this case Simon will be liable under the Limitations Act. but his transactions with the Beaut Ute Ltd.  for $9,000 will not make him liable to his other partners as he had obeyed the rule of limitation for this transaction made. The partners had agreed to make transaction worth up to $10,000 for the company without consulting (Meuer, 2014) each other, only when the transactions were more than $10,000 only then they had to consult all the partners prior to making the transactions.

The partners in a company must take reasonable care in making transactions in the partnership company as they are liable for any loss resulting due to failure to act with good care. It is the duty of all the partners to keep each other informed at all times. All the partners are also have to take equal part in the transactions of the company, it is not accepted that one partner contributes more in financial terms than the other partner. The partners have equal right to inspect the books of partnership. All the partners are equal in a partnership firm and have the same rights and duties in the firm. The profit and loss in a firm are also shared by the partners of the company.


The outcome of the case would result that Simon had made a breach of contract with the other partners under the Limitations Act, 1963. The transaction he had made with the Sunstar Company was beyond $10,000 and he was liable for that, but Simon was not liable for the $9,000 transaction made to Beaut ute Ltd, since he obeyed the law of limitations in this case. The law of limitation keeps a constant check on the cases and the partners in relation to which the suit can be filled and the time available within which the individual can get remedies. Section 5 of the Limitation Act, gives opportunity to the litigants to go and file applications that are beyond the defined time. Article 64 and 65 of the Limitations Act, 1963 focuses on the adverse possession.

Reference List:

Banerjee, B. (2015). Fundamentals of Financial management. PHI Learning Pvt. Ltd..

Chappell, D., & Dunn, M. H. (2015). The architect in practice. John Wiley & Sons.

Day, N. C. (2016). Working in partnership to address the risks of transporting goods by road. In Risk, Reliability and Safety: Innovating Theory and Practice (pp. 1700-1704). CRC Press.

Fooks, G., & Gilmore, A. B. (2014). International trade law, plain packaging and tobacco industry political activity: the Trans-Pacific Partnership. Tobacco control, 23(1), e1-e1.

Glasby, J., & Dickinson, H. (2014). Partnership working in health and social care: what is integrated care and how can we deliver it?. Policy Press.

Hannon, M. J., & Bolton, R. (2015). UK Local Authority engagement with the Energy Service Company (ESCo) model: Key characteristics, benefits, limitations and considerations. Energy Policy, 78, 198-212.

Lawson, T. (2014). The nature of the firm and peculiarities of the corporation. Cambridge Journal of Economics, beu046.

Marx, K. (2015). On the question of free trade. Arsalan Ahmed.

McLaughlin, S. (2013). Unlocking Company Law 2nd Edition. Routledge.

Meuer, J. (2014). Archetypes of inter-firm relations in the implementation of management innovation: A set-theoretic study in China’s biopharmaceutical industry. Organization Studies, 35(1), 121-145.

Salmon, M. (2016). Women and the law of property in early America. UNC Press Books.

Selwyn, N. M., & Emir, A. (2014). Selwyn's law of employment. Oxford University Press, USA.

Snopko, J. (2014). Public-private partnership and hybrid projects as an effective method for financing local government investment projects. Zarz?dzanie Publiczne, 27(3), 263-271.

Sturtz, L. (2013). Within her power: propertied women in colonial Virginia. Routledge.

Thaler, T. (2014). Developing partnership approaches for flood risk management: implementation of inter-local co-operations in Austria. Water International, 39(7), 1018-1029.

Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Whitehead, G. (2014). Economics: Made Simple. Elsevier.

Williams, B. R. (2014). African Growth and Opportunity Act (AGOA): Background and Reauthorization. Current Politics and Economics of Africa, 7(3), 203.

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