Sole Proprietorship- What You Need To Know About It

Sole proprietorship is the most common and possibly the simplest form of business. Many small businesses that operate in the United States today are sole proprietorships. A sole proprietor is someone who owns and manages the business and is entirely responsible for all relevant business transactions. This business owner is also personally responsible for all accounting procedures incurred by the business. He/ she can own the business for a given duration of time and sell it whenever he or she feels like it. A sole proprietor can also pass a business down to his or her heirs or to the next of kin.

In this type of business- sole proprietorship, there are no specific business taxes taken care of by the company. The owner only pays taxes on income from the business as part of his or her personal income tax payments.

Sole proprietors of businesses need to comply with necessary licensing requirements in the states in which they do the businesses and also local regulations and zoning ordinances. The routine paperwork and formalities, however, are usually less than those of the corporations, thus allowing sole proprietors of businesses to launch his business quickly and with a lot of ease – from a bureaucratic standpoint. It can sometimes also be less costly to start a business as a sole proprietor you must note. This is attractive to many new business inventors, who often find it a tall order attracting investors.

Advantages of Sole Proprietorship

  • He exercises complete command control and decision-making power over the business.
  • Sale or transfer can take place at the discretion of the sole proprietor.
  • There are no corporate tax payments to be incurred
  • Lesser legal costs when forming a sole proprietorship
  • There are few formal business requirements

Disadvantages of a Sole Proprietorship

On the other hand, there are also the disadvantages;

  • Sole proprietors of businesses can be held personally responsible for the debts and obligations of the business. In addition, the risk may extend to any liabilities incurred from actions committed by employees of the company.
  • All core responsibilities and decisions pertaining the business fall on the shoulders of the sole proprietor.
  • Most investors won’t usually consider investing in sole proprietorships.

A quick point to note; suppose the business is to be done under a fictitious name, it’s the entire responsibility of the sole proprietor to file all applicable forms under the fictitious name or under doing business as (DBA). However, this does not necessarily mean that the enterprise is a separate entity from a legal standpoint. The sole proprietor will always remain accountable whether he or she is doing business under a fictitious name or not.

Usually most sole proprietors will rely on loans and personal assets to initially finance their business. Some may also decide to elect incorporate once the business has taken root. Some other business owners will maintain their sole proprietorship for very many years.

If you are considering starting up a sole proprietorship business then you must have found this informative article useful.


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