A sole proprietorship also known as a sole trader, or simply proprietorship is a type of business entity A business is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner (subject to taxation). All assets of the business are owned by the proprietor and all debts of the business are their debts and they must pay them from their personal resources. This means that the owner has unlimited liability. It is a "sole" proprietorship in the sense that the owner has no partners (partnership A partnership is a type of business entity in which partners share with each other the profits or losses of the business. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied)).
A sole proprietor may do business with a trade name A trade name, also known as a trading name or a business name, is the name which a business trades under for commercial purposes, although its registered, legal name, used for contracts and other formal situations, may be another other than his or her legal name. This also allows the proprietor to open a business account with banking institutions.
Advantages
The main advantages of a sole proprietorship are that they are easy to start up, they are subject to fewer regulations relative to other types of businesses, the owner has full autonomy with regard to business decisions, and they are easy to discontinue. [1] Another advantage is that one takes all the profits of the business. This is the main reason that most businesses are of this type. A sole proprietorship is not a corporation; it does not pay corporate taxes Corporate tax refers to a tax levied by various jurisdictions on the profits made by companies or associations. It is a tax on the value of the corporation’s profits, but rather the person who organized the business pays self employment taxes on the profits Accounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses made, making accounting Accountancy or accounting is the art of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management much simpler. A sole proprietorship also does not have to be concerned with double taxation Double taxation is the imposition of two or more taxes on the same income , asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to two distinct situations:, as a corporate entity In the United States, a company is a corporation—or, less commonly, an association, partnership, or union—that carries on an industrial enterprise." Generally, a company may be a "corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not, and any receiver, would. A sole proprietor usually has a quick decision process and doesn't have any opposition when making a decision as he or she has total control of his business. All profits and losses accrue to the owner. The owner does not have the tension regarding conflicts among the partners as there are no partners. Also its easy to set, with having little paper work to fill in and little money spent on setting up this is one of the easiest types of business to start.
Disadvantages
A business organized as a sole trader will likely have a hard time raising capital since he has to make up for all the business's funds. The owner of the business has unlimited liability as he is responsible for the business's debts because he has control over the business.
A disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a corporation, or, more recently, a Limited Liability Company A limited liability company in the law of the vast majority of United States jurisdictions is a legal form of business company that provides limited liability to its owners. Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation.
References
- ^ "Becoming a sole trader - the basics," Constructaquote.com, http://www.constructaquote.com/home/business-guides/becoming-a-sole-trader---the-basics.aspx
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Crystal
Wed, 22 Apr 2009 17:27:15 GM
In Canada, . sole proprietorships. have the easiest path to name registration.
