Sole Proprietor

Sole Proprietor – Business Law Series – Business Entities

Sole Proprietor (Sole Trader), is the most common form of business organization and is generally one person doing business by themselves.
Business owners may hire employees and are responsible for their actions. E.g. If an employee damages something or injures someone the business owner may be liable for any costs or legal claims.

Sole Proprietor - Advantages

Sole Proprietor

Sole Proprietor

  • A sole proprietorship is easy to set up and has little formal paperwork.
    • Starting this form of business can be as simple as promoting your new business by putting a sign up announcing your new services or product.
  • The business is easy to end.
  • A sole proprietorship generally has fewer regulations.
  • The business owner keeps all the profits and has the freedom to make all the decisions.
  • Income is usually declared on the owner’s individual income tax return.

Sole Proprietor - Disadvantages

  • Unlimited liability (See Article 'Limited and Unlimited Liability' for more information).
    • This means that the owner of a sole proprietorship is personally responsible for the obligations of the business, including actions of any employee representing the business.
    • The owner is 100% liable for business debts.
  • Ownership of proprietorship may be difficult to transfer
  • The business may have a limited life as, in most cases, the business dies or stops operating a when the business owner does.
  • It can be difficult to raise capital especially if the business has not been operating for long and has limited income to show.
  • Most business funds come from personal savings or personal loans.

Note: The largest issue with a sole proprietorship is unlimited liability. (See Article 'Limited and Unlimited Liability' for more information).

Sole Proprietor: Image by Michal Jarmoluk from Pixabay

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Posted in Business Entities, Business Law, Entrepreneur.