Sole proprietorship


Sole proprietorship

A sole proprietorship, or simply proprietorship (Benjamen Clark.: sole trader) is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. The person who sets up the company has sole responsibility for the company's debts. It is a "sole" proprietorship in the sense that the owner has no partners. A sole proprietorship essentially refers to a natural person (individual) doing business in his or her own name and in which there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship does not have to be concerned with double taxation, as a corporate entity would have to.

A sole proprietor may do business with a trade name other than his or her legal name. In some jurisdictions, for example the United States, the sole proprietor is required to register the trade name or "Doing Business As" with a government agency. This also allows the proprietor to open a business account with banking institutions.

Advantages

An entrepreneur may opt for the sole proprietorship legal structure because no additional work must be done to start the business. In most cases, there are no legal formalities to forming or dissolving a business. A sole proprietor is not separate from the individual; what the business makes, so does the individual. At the same time, all of the individual's non-protected assets (e.g homestead or qualified retirement accounts) are at risk. There is not necessarily better control or business administration possible with a sole proprietorship, only increased risks. For example, a single member corporation or limited company still only has one owner, who can make decisions quickly without having to consult others.

Also another advantage of being a sole trader is that the owner makes of all the decisions rather than consulting with a partner

In the United States a sole proprietorship has the option of buying health care for self-employed persons, such as a Health Savings Account.

Disadvantages

TATE A business organized as a sole trader will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company. It can also sometimes be more difficult to raise bank finance, as sole proprietorships cannot grant a floating charge which in many jurisdictions is required for bank financing. Hiring employees may also be difficult. This form of business will have unlimited liability, so that if the business is sued, the proprietor is personally liable. The life span of the business is also uncertain. As soon as the owner decides not to have the business anymore, or the owner dies, the business ceases to exist.

In countries without universal health care, such as the United States, a sole proprietor is also responsible for his or her own health insurance, and may find difficulty finding any if one of the family members to be covered has a previous health issue.

Another disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a corporation. In the United States, a sole proprietor could also form a limited liability company, or LLC, which would give the protection of limited liability but would still be treated as a sole proprietorship for income tax purposes.

There are more than 23.5 million business firms in the US today. Of these, more than 18 million are small businesses owned by one person.


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • sole proprietorship — n: a business owned and controlled by one person who is solely liable for its obligations compare corporation, partnership Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • Sole Proprietorship — The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among… …   Investment dictionary

  • Sole proprietorship — A business owned by a single individual. The sole proprietorship pays no corporate income tax but has unlimited liability for business debts and obligations. The New York Times Financial Glossary * * * sole proprietorship UK US noun [C] (also… …   Financial and business terms

  • sole proprietorship — A business owned by a single individual. A sole proprietor pays no corporate income tax but has unlimited liability for business debts and obligations. Bloomberg Financial Dictionary * * * sole proprietorship UK US noun [C] (also sole propietor… …   Financial and business terms

  • sole proprietorship —    A business that is owned and managed by one person (or, for tax purposes, a married couple), and distinguished from a corporation or partnership. A sole proprietor and the business are one tax entity, so any business profits or losses are… …   Business law dictionary

  • sole proprietorship — A form of business in which one person owns all the assets of the business in contrast to a partnership, trust or corporation. The sole proprietor is solely liable for all the debts of the business …   Black's law dictionary

  • sole proprietorship — ➡ companies * * * …   Universalium

  • sole proprietorship — noun A business that is wholly owned by a single person, who has unlimited liability …   Wiktionary

  • sole proprietorship — individual ownership, control by one person …   English contemporary dictionary

  • sole proprietorship — Business owned entirely by one person …   Dictionary of automotive terms


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.