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LEGAL FORMS OF BUSINESS (Business Ownership)

● Business enterprises may be organized either as a Sole Proprietorship, a partnership, or a
corporation.
Sole Proprietorship
● A sole proprietorship has only one owner, the proprietor. The proprietor may operate on
his/her own, or may employ others as business operations expand. Many successful
business undertakings started as sole proprietorships. Sole proprietorship is the most basic
legal form of business.
● A sole proprietorship enjoys several advantages over other forms of business ownership. It
is the easiest to form. It has less complex business transactions and has minimal regulatory
requirements. With only one owner, decisions can be made and implemented faster. Finally,
the proprietor enjoys all the profits earned by the business.
● On the other hand, as the volume of business increases, a proprietor faces financing
problems because of the enterprise’s limited ability to raise capital. The business can only
expand in proportion to the increase in resources contributed by the proprietor; and when it
expands, the expansion usually focuses on areas within the expertise of the proprietor. In
decision-making, a proprietor does not receive the benefit of a second opinion. While the
proprietor enjoys all profits earned by the business, he/she alone bears the risks and losses
of the enterprise. Finally, a sole proprietor has unlimited personal liability for the debts
incurred by the business – his/her personal property may be used to satisfy the obligations
due to creditors of the proprietorship.
● Example.
● Mobile phone repair services, gravel-and-sand enterprises, cottage industries and other
small-scale businesses are mostly in the form of sole proprietorships.
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