SOLE PROPRIETERSHIP

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Table of Contents
What is Sole Proprietorship?.......................................................................................................................1
Definition of Sole Proprietorship.................................................................................................................2
Sole proprietorship business is not separate entity from the owner.........................................................2
The owner of the business has not limited liability..................................................................................3
The business can make lawsuits or can be sued in the owner’s name......................................................3
Features and Characteristics of Sole Proprietorship.....................................................................................3
Advantages and Disadvantages of Sole Proprietorship................................................................................3
Advantages of sole proprietorship...........................................................................................................3
Disadvantages of sole proprietorship.......................................................................................................4
Where register sole proprietorship...............................................................................................................4
References...................................................................................................................................................4

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What is Sole Proprietorship?
A business which is run or operated by a single owner or individual, and this owner enjoys all profits
earned, similarly liable for unlimited liabilities, loss and debts all alone, is a sole proprietorship business.
The Entrepreneurs, business owners who are self-employed, independent contractors and Franchisee,
these all people are sole proprietors. The owner of sole proprietorship is known as Sole proprietor. There
are many other types of business. If this ownership is divided between two or more persons, and agree to
share the profits, risk and losses, then business practice is no longer sole proprietorship, then it is called
partnership. So it is well cleared that business type is depend on the ownership, and these ownership
defines what kind of business it is. If the business company has separate identity, liability is limited and
owned by two or more people, the business is neither sole proprietorship nor partnership, it is then it is
corporation business. These are some of few other types of business entities which are limited
partnership, LLC (Limited liability Company), non-profit organization and cooperative.

The sole proprietorship is business entities which is the easiest entity of business. To set a sole
proprietorship business are easy to set up as this type of business is settled up by a single person and
operated by this same person (Kinnison, 2019).

Above picture elaborates that sole proprietorship is owned by the one person. The owner is liable for all
business debts and lawsuits. As the sole proprietorship is not the same entity, the debts of the business is
actually, the debt of owner, but meanwhile, all profits of the business are directly flowed to the owner of
sole proprietorship. It is simple business because in this business type, the governmental involvements
and regulations are lacking. These business are most popular among sole owners, individual contractors
and consultants due to less governmental intervention. The owner of sole proprietorship have to pay the
personal income tax on the earning or profit made from the business. This is also known as sole trader or

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merely proprietorship. In sole proprietorship, the separate business names are not necessary, so the
owners run business under their own name. Another positive of sole proprietorship is that business can be
easily ended up as easily it can be settled up (TWIN, 2021).

Definition of Sole Proprietorship

The easy definition of the sole proprietorship business is defined as the business entity which is owned by
and operated or controlled by a single person, and business is not separate entity from the person. The
person do not have other partner, and person is personally liable for all the debts incurred in a business.
This simple definition mentions the difference of sole proprietorship from other businesses (TWIN,
2021). For example if a person is doing freelancing, starting a new venture or entrepreneur, and even has
solo gigs, then he is considered involved in sole proprietor business.

The legal definition of a sole proprietorship is defined as (ACRA, 2019):

Sole proprietorship business is not separate entity from the owner

The sole proprietorship business is not different from the owner. The business and owner are
same. All the profits earned from a sole proprietor are included in the personal income tax.

The owner of the business has not limited liability.

The sole proprietorship has unlimited liability means that if a business face losses and is unable to
meet the amount of losses from the business assets, then the creditors can overcome their losses
and damages by coming for the personal properties. The owner of sole proprietorship is not
exempt from the liabilities incurred by the business. They do not have government protection as
these business are not registered. The personal money and the business money are the same, one
time. So the business liabilities come from business to owners’ extend.

The business can make lawsuits or can be sued in the owner’s name.
When to sue the business or person, one have to file against the name of the person who is
operating and controlling the business. The lawsuit is made against the owner name, instead of
company because company is not registered (The people's lawyer, 2019).

Features and Characteristics of Sole Proprietorship

Following are the features and characteristics of the sole proprietorship (tutor, 2021).

1. Ownership
The sole proprietor is a business in which all the business is owned by a single person. This
owner, known as sole trader, is responsible for creating pool of capital and manage the all
activities of his business on his own.
2. Common identity
The owner and the business are not separate entities. This is why no special filings and legislation
is required to start a business. This makes an easy start up.
Beside this, all legal lawsuits are done in the name of the owner.
3. Pool of capital

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 The owner come up with his all capitol and resources on his own. If he lack some capitol, he can
borrow from his friends and family members as investment to start a business.
4. Unlimited liability
The liability incurred by the business is not limited. The creditors can come for the personal
assets or even for property, if their losses are not recovered.
5. One man control
All the control is under one man either its control over the business operation and management or
on the profits, the owner is responsible for everything.
6. No special legislation
There is no legal protection by a government is given to the sole proprietorship as it is not
necessarily registered.

Advantages and Disadvantages of Sole Proprietorship

The sole proprietorship has advantages, and meanwhile some disadvantages which are as below (CFI,
2021) :

Advantages of sole proprietorship

1. Easy to set up
The sole proprietorship is easy to start. It requires less paperwork and minimum, or no fees at all.
2. No profit sharing with partners
The person don’t have to share the profit with other partners and all the profit flows belong to
owner.
3. Tax advantages
The owner do not have to pay dual taxes as happen in partnership and corporation.
4. Very few governmental regulations
This business has very less legal requirements to follow. They do not have to spent time and
resources such as on financial information reports.

Disadvantages of sole proprietorship

1. Unlimited liability
The unlimited liability goes from owner to entity
2. No governmental legal protection
This business has no protection by government, as the liabilities of business is not exempt as
exempted in other business (partnership and corporation etc.)
3. Difficulty in raising capitols
The fund raising is limited, they lack opportunity of sell shares for fund raising.

Where register sole proprietorship

Business can be conducted in many ways, such as in form of sole proprietorship, partnership, and
corporation, but no matter which business has to be conducted, the business must have to be registered.
As partnerships and corporations are registered in SEC (Securities and Exchange Commission), similarly
the sole proprietorship is registered in the Department of Trade and Industry (DTI) (ndvlaw, 2021).

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Registering the sole proprietorship is very easy and simple. For registration, DTI requires some
information such as proposed name/s of business, business activity, address of business, business scope,
and owner related personal information. The DTI also asks for any sort of identification card, such as
passport, CNIC, PRIC ID, Driving card etc. DTI provides three ways for registering sole proprietorship
which involves: on counter, online filling and hybrid. Once the registration is valid only for 5years, and
must be renewed on time, otherwise extra of 50% of registration fee shall be imposed.

References
ACRA. (2019). What is a sole proprietorship? Retrieved from www.acra.gov.sg:
https://www.acra.gov.sg/how-to-guides/starting-sole-proprietorships/what-is-a-sole-
proprietorship

CFI. (2021). What is a Sole Proprietorship? Retrieved from corporatefinanceinstitute.com:

https://corporatefinanceinstitute.com/resources/knowledge/strategy/sole-proprietorship/

Kinnison, A. (2019). The Seven Most Popular Types of Businesses. Retrieved from www.volusion.com:
https://www.volusion.com/blog/business-types/

ndvlaw. (2021). How To Register a Sole Proprietorship with the DTI. Retrieved from ndvlaw.com:
https://ndvlaw.com/how-to-register-a-sole-proprietorship-with-the-dti/

The people's lawyer. (2019). Whom Do You Sue? Retrieved from www.peopleslawyer.net:
http://www.peopleslawyer.net/legal-topics/smallclaims/whom.html#:~:text=To%20sue%20a
%20sole%20proprietor,he%20or%20she%20is%20using.&text=To%20sue%20a%20corporation
%2C%20on,is%20a%20separate%20legal%20entity.

tutor. (2021). Features Of Sole Proprietorship. Retrieved from www.tutorhelpdesk.com:

https://www.tutorhelpdesk.com/homeworkhelp/Management-/Features-Of-Sole-Proprietorship-
Assignment-Help.html

TWIN, A. (2021). Sole Proprietorship. Retrieved from www.investopedia.com:

https://www.investopedia.com/terms/s/soleproprietorship.asp#what-is-a-sole-proprietorship