SOLE

PROPRIETORSHIP
PRESENTED BY:
WHAT IS A SOLE PROPRIETORSHIP?

A SOLE PROPRIETORSHIP IS A BUSINESS THAT CAN

BE OWNED AND CONTROLLED BY AN INDIVIDUAL,
A COMPANY OR A LIMITED LIABILITY
PARTNERSHIP. THERE ARE NO PARTNERS IN THE
BUSINESS.
 THE LEGAL STATUS OF A SOLE
PROPRIETORSHIP CAN BE DEFINED AS
FOLLOWS:
IT IS NOT A SEPARATE LEGAL ENTITY FROM THE BUSINESS
OWNER
THE BUSINESS OWNER HAS UNLIMITED LIABILITY (I.E.
THE BUSINESS OWNER IS PERSONALLY LIABLE FOR ALL
THE DEBTS AND LOSSES OF THE SOLE PROPRIETORSHIP)
IT CAN SUE OR BE SUED IN THE OWNER’S NAME
 ADVANTAGES OF A SOLE
PROPRIETORSHIP
1. EASY AND INEXPENSIVE PROCESS THE ESTABLISHMENT OF A
SOLE PROPRIETORSHIP IS GENERALLY AN EASY AND
INEXPENSIVE PROCESS. CERTAINLY, THE PROCESS VARIES
DEPENDING ON THE COUNTRY, STATE, OR PROVINCE OF
RESIDENCE. HOWEVER, IN ALL CASES, THE PROCESS
REQUIRES MINIMUM OR NO FEES, AS WELL AS VERY LITTLE
PAPERWORK.
2. FEW GOVERNMENT REGULATIONS SOLE
PROPRIETORSHIPS ADHERE TO A FEW REGULATORY
REQUIREMENTS. UNLIKE CORPORATIONS, THE ENTITIES DO
NOT NEED TO SPEND TIME AND RESOURCES ON VARIOUS
GOVERNMENT REQUIREMENTS SUCH AS FINANCIAL
INFORMATION REPORTING TO THE GENERAL PUBLIC.
3. TAX ADVANTAGES UNLIKE THE SHAREHOLDERS OF
CORPORATIONS, THE OWNER OF A SOLE PROPRIETORSHIP IS
TAXED ONLY ONCE. THE SOLE PROPRIETOR PAYS ONLY THE
PERSONAL INCOME TAX ON THE PROFITS EARNED BY THE
ENTITY. THE ENTITY ITSELF DOES NOT HAVE TO PAY
INCOME TAX.
 DISADVANTAGES POTENTIAL
DISADVANTAGES INCLUDE THE
FOLLOWING:
1. UNLIMITED LIABILITY OF THE OWNER SINCE A SOLE
PROPRIETORSHIP DOES NOT CREATE A SEPARATE LEGAL
ENTITY, THE BUSINESS OWNER FACES UNLIMITED
PERSONAL LIABILITY FOR ALL DEBTS INCURRED BY THE
ENTITY. IN OTHER WORDS, IF A BUSINESS CANNOT MEET
ITS FINANCIAL OBLIGATIONS, CREDITORS CAN SEEK
REPAYMENT FROM THE ENTITY’S OWNER, WHO MUST
USE HIS OR HER PERSONAL ASSETS TO REPAY
OUTSTANDING DEBTS OR OTHER FINANCIAL
2. LIMITATIONS ON CAPITAL RAISING UNLIKE PARTNERSHIPS
AND CORPORATIONS, SOLE PROPRIETORSHIPS GENERALLY
ENJOY FEWER OPTIONS TO RAISE CAPITAL. FOR EXAMPLE,
THE OWNER CANNOT SELL AN EQUITY STAKE TO OBTAIN NEW
FUNDS. IN ADDITION, THE ABILITY TO OBTAIN LOANS
DEPENDS ON THE OWNER’S PERSONAL CREDIT HISTORY.
FEATURES OF SOLE
PROPRIETORSHIP
 FORMATION AND CLOSURE
THIS TYPE OF BUSINESS ORGANIZATION IS FORMED BY THE OWNER
HIMSELF.
NO LEGAL CONVENTIONS ARE OBLIGED TO START THE SOLE
PROPRIETORSHIP FORM OF ORGANIZATION.
IN SOME INSTANCES, THE LEGAL FORMALITIES ARE REQUIRED OR
THE OWNER SHOULD HAVE A PARTICULAR LICENSE OR A
CERTIFICATE TO RUN THE BUSINESS.
THE OWNER CAN CLOSE THE BUSINESS AT HIS OWN DISCRETION.
EXAMPLE: GOLDSMITH OR A PERSON RUNNING A MEDICAL SHOP
SHOULD HAVE A LICENSE TO RUN THIS TYPE OF BUSINESS
 LIABILITY
IN THE SOLE PROPRIETORSHIP BUSINESS, THE SOLE OWNER HAS
UNLIMITED LIABILITY.
IN THIS CASE, THE OWNER IS HIMSELF LIABLE TO PAY ALL THE
LIABILITIES. IF HE TAKES A LOAN FOR ITS BUSINESS THEN HE WILL BE
LIABLE FOR ALL THE DEBTS.
HENCE, HE IS PERSONALLY LIABLE FOR ALL THE DEBT WHICH CAN BE
RECOVERED BY HIS PERSONAL ESTATE WHEN FUNDS ARE INSUFFICIENT.
EXAMPLE: A LOAN TAKEN BY THE OWNER OF THE SWEET SHOP IS
SOLELY RESPONSIBLE FOR THE REPAYMENT OF THE LOAN TO THE BANK.
 SOLE RISK BEARER AND PROFIT
RECIPIENT
A SOLE PROPRIETOR IS ONLY THE ONE WHO BEARS ALL
RISKS WHICH ARE RELATED TO ITS BUSINESS.
ALL THE PROFITS OR LOSSES WHICH ARE EARNED FROM
THE BUSINESS ARE TO BE ENJOYED BY THE SOLE OWNER.
 CONTROL
AS ALL THE RIGHTS AND RESPONSIBILITIES LIE WITH THE SOLE
PROPRIETOR THAT IS WHY HE CONTROLS ALL THE BUSINESS
ACTIVITIES.
NO ONE CAN INTERFERE IN THE BUSINESS ACTIVITIES OF A SOLE
PROPRIETOR.
HENCE, ONLY THE SOLE PROPRIETOR CAN MODIFY HIS PLANS
ACCORDINGLY.
 NO SEPARATE ENTITY

ACCORDING TO THE ACCOUNTING SYSTEM, THE OWNER

AND THE BUSINESS ARE CONSIDERED AS TWO SEPARATE
ENTITIES.
BUT THE LAW DOES NOT MAKE ANY DISTINCTION
BETWEEN THE SOLE TRADER AND ITS BUSINESS.
HENCE, WITHOUT THE SOLE TRADER, THE BUSINESS HAS
NO IDENTITY BECAUSE HE IS THE ONLY PERSON WHO
PERFORMS ALL THE BUSINESS ACTIVITIES.
 LACK OF BUSINESS CONTINUITY
DEATH, IMPRISONMENT, PHYSICAL AILMENT, INSANITY OR
BANKRUPTCY OF THE SOLE PROPRIETOR WILL DIRECTLY
AFFECT THE BUSINESS OR IT MAY CAUSE SHUTTING DOWN OF
THE BUSINESS.
IN THE CASE OF THE BENEFICIARY, SUCCESSOR OR LEGAL
HEIR OF SOLE PROPRIETOR, HE CAN RUN THE BUSINESS ON
BEHALF OF THE PROPRIETOR.
THANK YOU