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A Sole Proprietorship

A Sole Proprietorship

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Published by kishorepatil8887

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Published by: kishorepatil8887 on Mar 31, 2010
Copyright:Attribution Non-commercial


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sole proprietorship
, or simply
, is a type of  business entitywhich legally hasnoseparate existencefrom its owner. Hence, thelimitations of liabilityenjoyed by acorporation  andlimited liability partnershipsdo not apply to sole proprietors. Alldebtsof the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. A sole proprietorship essentially means a persondoes business in their own name and there is only oneowner. A sole proprietorship is not a corporation; it does not paycorporate taxes, but rather the person who organized the business pays personalincome taxeson the profitsmade, making accountingmuch simpler. A sole proprietorship need not worry aboutdouble taxationlike a corporate entitywould have to.Most sole proprietors will register atrade nameor "Doing Business As". This allows the  proprietor to do business with a name other than his or her legal name and also allows the proprietor to open a business account with banking institutions.
[edit] Advantages
Anentrepreneur may opt for the sole proprietorship legal structure because no additional work must be done to start the business. In most cases, there are no legal formalities to forming or dissolving a business. A sole proprietor is not separate from the individual; what the businessmakes, so does the individual. At the same time, all of the individual's non-protected assets (e.ghomestead or qualified retirement accounts) are at risk. There is not necessarily better control or  business administration possible with a sole proprietorship, only increased risks. For example, asingle member, member managed LLC still only has one owner, who can make decisions quicklywithout having to consult others, but has the advantage of limited liability.Furthermore, in many jurisdictions, a sole proprietorship files simpler tax returns to report its business activity. In theUnited States, for example, a sole proprietorship reports its income anddeductions on a Schedule C on the individual's personal return. To the IRS, a single member LLC is treated as a disregarded entity, and thereby, the owner of a single member LLC will stillreport income and deductions on a Schedule C on their individual . In comparison, an identicalsmall business operating as an S Corporation or partnership would be required to prepare andsubmit a separate tax return. As with all flow through entities, all of the profits and losses fromthe business go right to the owner. A sole proprietorship often has the advantage of the leastgovernment regulations.
[edit] Disadvantages
A business organized as a trader will likely have a hard time raising capital sincesharesof the business cannot be sold, and there is a smaller sense of legitimacy relative to a businessorganized as a corporation or limited liability company. It can also sometimes be more difficultto raise bank finance, as sole proprietorships cannot grant afloating chargewhich in many jurisdictions is a
 sine qua non
of bank financing. Hiringemployeesmay also be difficult. Thisform of business will have unlimited liability, therefore, if the business issued, the proprietor is personally liable. The life span of the business is also uncertain. As soon as the owner decidesnot to have the business anymore, or the owner dies, the business ceases to exist.

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