Sole Proprietorship

SOLE PROPRIETORSHIP

A sole proprietorship also called the sole trader, proprietorship, or individual entrepreneurship is a type of venture that is owned and run by one person and in which there is no legal variance between the owner and the business body. A sole trader does not necessarily work 'alone'—the sole trader can employ other people.

The proprietorship receives all profits (subject to tax rules specific to the business) and has unlimited authority for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are of the proprietor. It is a "sole" proprietorship in contrast with partnerships that have at least two owners.

The proprietorship receives all profits (subject to tax rules specific to the business) and has unlimited authority for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are of the proprietor. It is a "sole" proprietorship in contrast with partnerships that have at least two owners.

Characteristics Of Sole Proprietorship

  • Legal Compliances
  • Profit and Risk
  • No Separate Identity
  • Liability
  • Continuity

Characteristics Of Sole Proprietorship

Legal Compliances

A sole proprietorship does not have a distinct law to govern it. And so there are not many special rules and regulations to follow. Also, registration or incorporation of any kind is not desired. In fact, in most cases, we need only the license to carry out the desired business.

Profit and Risk

The owner of the business is the only one who bears the risk in a sole proprietorship. Since he is the only one invested funds in the company. Hence, he/she must also bear all the risk. In other words, if the business fails or suffers losses he will be the one affected. However, he also enjoys all the profits from the business. He does not have to share his profits with any other stakeholders since there are none. So, in order to enjoy full profits, he/she also must bear the complete risk, in exchange.

Liability

The liability of the owner is personal and unlimited because a sole proprietorship is not a separate legal entity. So if a business suffers loss or unable to repay its debt; the personal assets of the proprietor will be attached.

Continuity

As seen above the business and the owner has a single identity. So a sole proprietorship is entirely dependent on the owner. The death, retirement, bankruptcy, insanity, or imprisonment, etc. will affect the sole proprietorship. In such situations, the proprietorship will cease to exist and the business will come to an end.

No Separate Identity

In legal terms, the business and the owner are the same. No distinct legal identity will be granted upon the sole proprietorship. So the owner will be responsible for all the activities and transactions of the business.

Benefits Of Sole Proprietorship

Confidentiality

Law does not require a proprietorship to publish its financial accounts or any other such documents to any members of the public. As a result, there is enough confidentiality, which is vital in the business world.

Control

A proprietor will have absolute control of the complete business. Thus this will facilitate quick decisions and freedom to do business.

Achievement

Being your own boss is a great sense of satisfaction and accomplishment. Moreover, you are answerable only to yourself. Hence it is a significant boost to your self-worth as well.

Profit

The business owner derives the maximum incentive from the business because he does not need to share any of his gains. So the work he puts into the business is entirely reciprocated in incentives.

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