What is sole proprietorship? Sole proprietorship is the term for the business owned by an individual. This individual is referred to as the ‘sole proprietor’.
Features of Sole Proprietorship.
1. Unified. Legally, there is no distinction between the business (commercial entity) and the sole proprietor (owner of the business).
2. Attached to a ‘natural person’. The sole proprietor of a business must be a ‘natural person’, i.e. a single real human being rather than a corporation or a fictional person.
3. Profits go to one person. All profits from the business go to the sole proprietor.
4. Losses all go to one person. Any losses borne by the business, including taxes, legal fees and debts, must be paid for by the sole proprietor.
5. Flexible. Sole proprietors can register a trade name for their business if they wish.
6. Used widely by freelancers. Sole proprietors can own conventional businesses such as shops. However, in the present day many sole proprietors are freelancers.
Advantages of Sole Proprietorship.
1. All profits go to one person. No need to share the profits among your employees when you are a sole proprietor: all profits automatically go to you!
2. Being your own boss. There is no need to gain the approval of partners or bosses when you make decisions about a business that you are the sole proprietor of.
Disadvantages of Sole Proprietorship.
1. Sole responsibility for debts. The most important role of the sole proprietor is being responsible for the business’s debts. If the business falls into debt, the the sole proprietor will have to pay them back to the lender.
2. Difficult to expand. It is difficult to expand your business without turning that sole proprietorship into a partnership.