A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business. Proprietor sows, reaps, and harvests the output of this effort. It is a type of business organization where one person or a family owns the firm. It is another name of owners' equity (Assets - Liabilities).
The sole proprietorship is an unincorporated business with one owner who pays personal income tax on profits from the business. It is considered as a single entity for tax and liability purposes. It simply refers to a person who manages the business, and is responsible for all of the business' transactions and financial liabilities.
The sole proprietorship is a popular business form due to its simplicity, easy to setup, nominal cost and no limit of minimum capital requirement. A sole proprietor need only register his or her name and secure local licenses and the sole proprietor is ready for business.
- Easy Start up
Start Up of sole proprietorship or its formation of business is easy as compared to other business, because it does not require any kind of legal formality like
- One Man Ownership
It is the simplest form of business organization, which is owned and controlled by one man.
- No Separate Business Entity:
A sole proprietorship is a type of business entity which legally has no separate existence from its owner.
- Unlimited Liability:
A sole proprietorship is the unlimited personal responsibility of the owner. Unlimited liability means that in case the enterprise incurs losses, the private property of the proprietor can also be used for fulfilling losses or meeting the business obligations to the outsiders.
In sole proprietorship, the capital is normally provided by the owner himselfwithout any minimum capital requirement obligation.
- Tax benefits:
The owner of a sole proprietorship is not required to file a separate business tax report. Income made from the business is counted as personal income and owners pay taxes according to their individual tax rates. This can save additional costs on accounting and tax filing. The business will be taxed at the rates applied to personal income, not corporate tax rates. Profits from the business will be taxed at the sole proprietor’s marginal tax rate, which may be lower than the corporate (limited company) tax rate.
- Sale and Inheritance:
Sale or transfer can take place at the discretion of the sole proprietor. The sole proprietor can own the business for as long as he or she decides, and can cash in and sell the business when they decide to get out.
Better and quick Decision-making:
The entrepreneur as sole proprietor can arrive at quick decisions concerning the business by which he can take the advantage of any better opportunities. The proprietor is free to make all decisions. There is no other person who can interfere in it. He has full decision-making power over policies, profits and capital investment.
The sole proprietorship can be easily dissolved, as there are no legal formalities involved in it. Since the proprietor is the supreme authority and no regulations are applicable for closure of the business he can dissolve his business any time he likes. It is due to the easy formation and dissolution, proprietorship is often used to test the business ideas.
- Government control:
Sole proprietorships have the least government rules and regulations. Regulated laws are almost negligible in its formation, day-to-day operation and dissolution.