Sole Proprietorship

The sole proprietorship is the simplest and most popular form of business ownership which can be choosen to start a business. It is not complicated, very easy to setup, and has nominal costing. A sole proprietor only need to register the name and secure local licenses, and the sole proprietor is ready for business. It is an unincorporated business that is owned by one individual who is personally responsible for making decisions, receives all the profits, claims all the losses. If you are a sole proprietor, you also assume all the risks of the business. The risks extend even to your personal property and assets. A sole proprietorship can operate under the name of its owner or it can do business under a imaginary name, such as batra’s cosmetics. The imaginary name is simply a trade name which does not create a legal entity separate from the sole proprietor owner.

Like all businesses, sole proprietorship also need to obtain the necessary licenses and permits. Regulations vary by industry, state and locality. Use the Licensing and Permits tool to find a listing of federal, state and local permits, licenses and registrations you’ll need to run a business. The sole proprietor owner will have customers write checks in the owner’s name, even if the business uses a fictitious name and has to sign contracts in their own name, because the sole proprietorship has no separate identity under the law. Sole proprietor owners can, and often do, combine personal and business property and funds, something that partnerships, LLCs and corporations cannot do. Sole proprietorships often have their bank accounts in the name of the owner. Sole proprietors don’t need to do formalities such as voting and meetings associated with the more complex business forms. Sole proprietorships can bring lawsuits (and can be sued) using the name of the sole proprietor owner. Many businesses begin as sole proprietorships and graduate to more complex business forms as the business develops.

TAXES :-

  • Schedule C (Profit or Loss from Business)
  • Form 1040 (Individual Income Tax Return)
  • Schedule SE (Self-Employment Tax)
  • Form 1040-ES (Estimated Tax for Individuals)

Your profits/losses and expenses are first recorded on a tax form called Schedule C, which is filed with your 1040. Then the “bottom-line amount” from Schedule C is transferred to your personal tax return. This aspect is intresting because business losses you suffer may offset income earned from other sources.

Advantages of Sole Proprietorship:

  1. Easy and least expensive form of ownership – A sole proprietorship is the easiest and least expensive form of ownership to organize, cost is also nominal.
  2. Complete control – Sole proprietor is the only owner so can make any decision or change without any consultation but within the parameters of the law.
  3. Complete income – Sole proprietors receive all income generated by the business to keep or reinvest. Profits from the business flow directly to the owner’s personal tax return.
  4. Easy tax preparation – Your business is not taxed separately, so it’s easy to fulfill the requirements for a sole proprietorship. The tax rates are also lowest for this business ownership
  5. East to dissolve – If a sole proprietorship business owner desires to discontinue the business for any reason then things like reporting or consultaion is not needed, the owner can dissolve the business whenever wants.

Disadvantages of a Sole Proprietorship:

  1. Unlimited liability – Sole proprietors have unlimited liability and are legally responsible for all debts, losses, liabilities against the business. There is no legal separation between you and your business so your personal assets are at risk.
  2. Can’t raise funds – Sole proprietorship owner can not raise funds and are often limited to using funds from personal savings or consumer loans. You cannot sell stock in the business, which limits investor opportunity. Banks are also hesitant to lend to a sole proprietorship because of the risk when it comes to repayment if the business fails.
  3. More responsibility/work – The another face of complete control is the work load and pressure. You alone are ultimately responsible for the successes and failures of your business.

8 thoughts on “Sole Proprietorship

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