Sole Proprietorship Business

Kalpana Borjha | Kalinga University | 18th June 2020

Introduction: 

Sole Proprietorship is an unincorporated business that has one owner who pays the income tax on profits earned from the business. This is the easiest type of business and very popular among individual self-contractors, sole business owners, consultants, etc. Due to the lack of Government interference and involvement, it is easy to establish and to dismantle a Sole Proprietorship Business. Sole Proprietorship does not require a separate legal entity to be formed.

Features: 

Following are the features of sole proprietorship business:-

• Lack of Legal Formalities: There are no separate laws or any special rules and regulations to govern the working of a sole proprietorship business. Any kind of registration or incorporation is not required in sole proprietorship business, sometimes only a license is necessary to carry the business of the owner’s choice. Just like its establishment, there is not much legal process involved to shut down the business.
• Liability: There is no separation between the owner and the sole proprietorship business; hence the personal liability of the owner becomes unlimited. He may need to sell his personal asset to meet the requirements of the business, such as debts or other liabilities.
• No separate identity: The business owner and the sole proprietor are the same and no other or separate legal entity is required to be formed for the business. The owner himself is solely responsible for all the business transactions and other such activities.
• Continuity of the business: The business is continued as the sole proprietor/ the owner wants. His death, insanity, retirement, bankruptcy, imprisonment, etc will not affect such proprietorship. In certain situations, the proprietorship will cease to exist and such business will end.
• Profits and Risks: The business is the only investors, he enjoys all the profits obtained from the business and do not need to share the profit to profit-holders or stakeholders, since there are none. Similarly, he is the only risk bearer in a sole proprietorship. If he suffers loss or the business fails, he is the only one to be affected.

Advantages of Sole Proprietorship Business:

• The whole control of the business is on one hand, i.e., under the sole proprietor/ the owner. He is free to take decisions in the business.
• There’s no hotchpotch of complex legal formalities, they do not require publishing the financial account or any such details or documents which maintain the confidentiality of the business matter.
• The sole proprietor is the only owner and derives the maximum benefit from the business, he does not need to share his profits incurred from the business.
• A sole proprietor is not answerable to anyone for the decisions taken by him.

Disadvantages of Sole Proprietorship Business:

• The biggest disadvantage of Sole Proprietorship Business is the unlimited personal liability upon the owner. He is the only loss-bearer in the business which might affect his personal property as well.
• Limited capital is also an issue for the Sole Proprietorship Business.
• The business owner might have limited abilities to manage the business. Every time it is not possible that a sole proprietor is an expert in the field of business; in such a situation, the business may suffer poor-management or mismanagement.
• If the owner is incapacitated, there might be a negative impact on the business and this may even lead to shutting down the business.

Conclusion: 

A sole proprietorship business is very profitable if planned, implemented, and managed properly. There is no person to give you command, the sole proprietor is the only Boss of the business. There are no complicated laws for Sole Proprietorship Business which makes it easier to set up and run such businesses.