SOLE PROPRIETORSHIP 

@@INTRODUCTORY OVERVIEW@@

• A sole proprietorship is a business owned and managed by a single individual.
• It is the most common and simplest type of business entity.
• A sole proprietorship can have multiple people operating the business, but it must have one sole owner.
• Sole proprietorships have several advantages over other business entities.
• They are easy to form, and the owners enjoy sole control of the business profits.
• However, they also have disadvantages, the biggest of which being that the owner is personally liable for all business losses and liabilities.
• With minimal licenses to obtain or separate forms to follow, sole proprietorships are relatively easy to form, easy to maintain, and easy to dissolve.

@@DEFINITION@@

A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity.

@@HOW A SOLE PROPRIETORSHIP IS FORMED?@@

• There is no separate cost to establish a sole proprietorship.
• A sole proprietorship is established when an owner begins operating his business.
• There are no separate licenses to obtain to form a sole proprietorship.
• The sole proprietorship will be maintained so long as the owner keeps doing business.

@@ADVANTAGES AND DISADVANTAGES@@

ADVANTAGES-

1. Easy and Inexpensive Process

The establishment of a sole proprietorship is generally an easy and inexpensive process. Certainly, the process varies depending on the country, state, or province of residence. However, in all cases, the process requires minimum or no fees, as well as very little paperwork.

2. Few Government Regulations

Sole proprietorships adhere to a few regulatory requirements. Unlike corporations, the entities do not need to spend time and resources on various government requirements such as financial information reporting to the general public.

3. Tax Advantages

Unlike the shareholders of corporations, the owner of a sole proprietorship is taxed only once. The sole proprietor pays only the personal income tax on the profits earned by the entity. The entity itself does not have to pay income tax.

4. Functional Advantages

One of the functional advantages of sole proprietorships is that they are easier to set up than other business entities. A person becomes a sole proprietor simply by running a business. Another functional advantage of a sole proprietorship is that the owner maintains 100% control and ownership of the business. By definition, a sole proprietorship can have only one owner, and that owner is entitled to the profits and control of the business.

DISADVANTAGES-

1. Unlimited Liability of the Owner

Since a sole proprietorship does not create a separate legal entity, the business owner faces unlimited personal liability for all debts incurred by the entity. In other words, if a business cannot meet its financial obligations, creditors can seek repayment from the entity’s owner, who must use his or her personal assets to repay outstanding debts or other financial obligations.

2. Limitations on Capital Raising

Unlike partnerships and corporations, sole proprietorships generally enjoy fewer options to raise capital. For example, the owner cannot sell an equity stake to obtain new funds. In addition, the ability to obtain loans depends on the owner’s personal credit history.

@@LIABILITY@@

• Sole proprietors have unlimited personal liability.
• There is no legal distinction between the owner and the business.
• This means that creditors of the business and individuals who have other claims against the owner can reach both the owner's business and personal assets.

 @@RESPONSIBILITIES@@

• An individual proprietor owns and manages the business and is responsible for all business transactions.
• The owner is also personally responsible for all debts and liabilities incurred by the business.
• A sole proprietor can own the business for any duration of time and sell it when he or she sees fit.

@@CLOSURE OF SOLE PROPRIETORSHIP@@

•  A sole proprietorship is dissolved when the owner stops doing business.

• This can occur if the owner sells the business, passes away and leaves the business to his heirs, or simply closes the business.

  @@PROS AND CONS@@

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