A sole proprietorship is a business which is owned and managed by single individual. This one is one of the most common and simplest types of business entity. The sole proprietorship which has multiple people operating the business but it must have only one sole owner.
These have several advantages over other business entities and they are easy to form and this owner will enjoy profit loss and control of the entire business profits. A sole proprietorship is dissolved when the owner himself stops doing business. This can be occurred, only if the owner, who sells the business or passes away and leaves the business to his heirs, or simply he closes the business in order due to his dislike.
They also have some of the disadvantages being a single owner who is personally liable for all business losses and liabilities.
How they are formed?
There is no separate cost to establish for a sole proprietorship owners. A sole proprietorship is established when an owner starts operating his business by his own. There are no separate licenses to obtain to form a sole proprietorship till now. The sole proprietorship owner will be maintained so long as the person keeps doing business by his own.
Advantages of sole proprietorship
Sole proprietorship which has functional and tax advantages, when compared to other business entities in the society. The one of the main functional advantage of sole proprietorship are they are easy to step up then other business entities. Sole proprietor is a person who simply runs a business.
Another functional advantage of this sole proprietorship is the owner who maintains 100 percentage controls and the ownership of the business. The basic definition a sole proprietorship which has only one owner and that owner is fully responsible for profit loss and control of the business.
Sole proprietors who has tax advantages over other business entities in addition this also avoids the owner from in curing double taxation produced by business income in the corporation. In sole proprietorship the owner is only text once where the business profits are filled only on his personal income tax.
Starting a sole proprietorship business is easy and also it is cheaper whereas other business structures have increased fees and feeling to open for a business.
Disadvantages of sole proprietorship
Sole proprietorship they have the liability and the functional disadvantages when compared to other business entities. There are disadvantages in the sole proprietorship is the potential exposure to liability where the owner of the proprietor is fully responsible for the loss and gain produced by the company.
- Self employment taxes they apply to sole proprietorship and the owner must be self employment taxes on the business income.
- Raising the capital fund is difficult whereas the initial fund of the business are generated by the owners of the company and the raising funds for the business is very hard since they cannot issue stocks or other investment income.
- And here the loans are also difficult because if the owner does not have enough credit source for secure additional money.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin