What Is A Sole Proprietor?

A sole proprietor, also known as a sole trader, is the most common type of business structure. Imagine you have a lemonade stand, and you are the only person running it. That’s like being a sole proprietor! You are in charge of everything, and the business belongs to you. You might even hire some friends to help you make and sell the lemonade.
However, being a sole proprietor also means that you are responsible for whatever happens at your lemonade stand. Let’s say one of your friends accidentally spills the lemonade on someone’s expensive phone, and it gets damaged. Or worse, someone gets hurt while they are at your stand. In these situations, you could be held accountable for any costs or legal problems that arise.
So, being a sole proprietor means you have the freedom to run your own business, but you also have to be careful and make sure everything goes smoothly. It’s important to think about the potential risks and take responsibility for the actions of your employees if you hire any.

Sole Proprietor – Advantages

  • 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 the 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 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).


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Posted in Business Entities, Business Law, Entrepreneur.