Sole trader insolvency

rdf:langString Sole trader insolvency

rdf:langString According to the Office for National Statistics, sole proprietors represented 23.8% of all UK enterprise in 2010. Of that number, more than half a million sole traders were operating via the PAYE or VAT system alone. Sole traders are a distinct legal entity, operating as one type of UK business structure. In the event of financial problems affecting the business, they are subject to different rules to those that govern companies. Sole trader insolvency occurs when the business cannot meet financial obligations. It may be that bills cannot be paid on time, leading to debts which eventually attract legal action by creditors. Insolvency does not automatically equate to bankruptcy; definitions of insolvency are provided within the Insolvency Act 1986. Cash flow insolvency occurs when a business cannot meet its credit obligations as they fall due. Balance sheet insolvency occurs when the businesses’ liabilities exceed its assets. According to Business Link there are a number of factors that can lead to sole trader insolvency. These can include late invoicing for goods or services, accepting orders that exceed its financial capacity to deliver, failure to recover debts, excess inventory and unsuitable credit arrangements and often personal drawings taken in excess of profit.