A sole proprietorship is a business that is owned and operated by a natural person (individual). This is the simplest form of business entity. The sole proprietorship is not a legal entity. The business has no existence separate from the owner who is called the proprietor. The owner must include the income from such business in his or her own income tax return and is responsible for the payment of taxes thereon. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. The fictitious name is simply a trade name–it does not create a legal entity separate from the sole proprietor owner. Only the proprietor has the authority to make decisions for the business. The proprietor assumes the risks of the business to the extent of all of his or her assets whether used in the business or not.
|Some advantages||Some disadvantages|
|Simple to establish and operate||Unlimited liability of the owner
The owner is legally liable for all the debts of the business. Not only the investment or business property, but any personal and fixed property may be attached by creditors. The owner signs contracts in his or her own name, because the sole proprietorship has no separate identity under the law.
|Owner is free to make decisions||Limited ability to raise capital
The business capital is limited to whatever the owner can personally secure. This limits the expansion of a business when new capital is required. A common cause for failure of this form of business organisation is a lack of funds. This restricts the ability of a sole proprietor (owner) to operate the business effectively and survive at an initial low profit level, or to get through an economic “rough spot
|Minimum of legal requirements||Limited skills
One owner alone has limited skills, although he or she may be able to hire employees with sought-after skills.
|Owner receives all the profits|||
|Easy to discontinue the business|||