What Is a Sole Proprietorship

Sole proprietorship is a form of business in which the entire business entity belongs to a single person or a married couple. All the profit that is received goes to the owner and the only thing he is liable for is clearing all the dues and taxes. A very simple example of this type of business is the local store below our houses or apartments. They are generally owned by a single person who is the proprietor or by a couple. Sole proprietorship is considered the most hassle free business to start with. Most of the times, there is little or no legal differentiation between the proprietor and the business. All the taxes and bills are generally made in the name of the proprietor rather than the name of the company.

It is really important to decide the kind of business which you want to start. To start with, it can be a sole proprietorship, a public limited/corporation, or a partnership. In case of partnership, there are generally two or more partners and the profit is split between them depending upon the money they’ve invested in the business. In the case of a corporation, there are shareholders and when the company makes profits, the shareholders receive dividends. In case of sole proprietorship, the owner is a single person and has the entire control of the business unit. Apart from clearing all debts, taxes and other liabilities, he has unlimited control over the profit received or the loss occurred. He is not answerable to anyone else in the business unit. He might have people like a clerk or a computer operator working for him, but they’ve no right over any asset or profit of the company. Majority of small business are sole proprietorship.

Sole proprietorship offers certain advantages to the proprietor. First of all, the owner can exercise unlimited power and take all the profits. He is the sole decision maker and thus, he can take those decisions he feels are right. Apart from this, the person doesn’t have to pay a part of the profits to shareholders as is the case with corporations and public limited companies. Also, the decision to keep the profits in your bank account or reinvesting them in your business is entirely upon you. Apart from this, the person has easy tax accounting since the business is in his name only. Setting up the unit is also really simple as it requires at the max one small office or a shop.

While sole proprietorship offers advantages, there are certain disadvantages associated with it as well. In case the business fails, you alone have to bear the consequences. You might be in debt, and in case you don’t have money to pay back, your personal assets like home, car etc are taken away or are mortgaged. Also at times, a personal cannot handle a business alone if he wants to expand.