Introduction

A Sole Proprietorship:

A sole proprietorship is a type of business that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s. A sole proprietor may use a trade name or business name other than his or her legal name.

Advantages:

  • You are a boss.
  • It is easy to organize and may be started with small amount of money.
  • It permits a high degree of flexibility to the owner since he/she is the boss of the business establishment.
  • Due to the owner’s unlimited liability, some creditors are more willing to extend credit.
  • The owner receives all the profit of the business.
  • No risk of fraud by a partner.
  • Quick decision making

Disadvantages:

The enterprise may be crippled or terminated if the owner becomes ill and in his/her absence no proper mechanism exists to manage and run the business. Since the business has the same legal entity as the proprietor, it may ceases to exist upon the proprietor’s death, and also if no one from the family is available to take over the business legitimately. Because the enterprise rests exclusively on one person, it often has difficulty in raising long-term capital.

  • Has limited resources. Banks are reluctant to grant loans to proprietorship considering its small assets and high mortality rate.
  • Unlimited liability for business debts. The single owner is responsible for paying all debts and damages of their business.
  • If the firm fails, creditors may force the sale of the proprietor’s personal property as well as their business property to satisfy their claim.
  • When the owner dies, the continuation of the business is difficult, because a new owner must typically accept all liabilities of the business.
  • bear risk and loss alone.