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What is a sole proprietership ?

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malika786 | Student, Grade 11 | Honors

Posted May 14, 2011 at 6:04 PM via web

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What is a sole proprietership ?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 14, 2011 at 10:40 PM (Answer #1)

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A sole proprietorship is a form of business where the owner of the business owns all of the assets of that business.  This is different from a partnership, where two or more people own the assets of the business, or a corporation.  Sole proprietorships are, at least in the United States, the most common type of small business.

Although sole proprietorships are easy to set up and have other advantages like fairly simple taxes, they also have two major disadvantages.  First of all, it is harder to raise funds if funds are needed.  As the "small-business-encyclopedia" link below says,

Many lenders are reluctant to provide financing to owners of sole proprietorships—in large part because of fears about their ability to recover the funds should the owner die or become disabled...

The other major drawback of a sole proprietorship is the fact that the owner is completely liable for any debts the business may incur.  This means that his/her personal assets may be taken if the business goes bankrupt.  As the link says, people to whom the business owns money can go after the proprietor's assets,

including your bank account, car or house….

 

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madihaa | Student, Undergraduate | Valedictorian

Posted May 14, 2011 at 9:32 PM (Answer #2)

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What Does Sole Proprietorship Mean?
The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners.

Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary. 

Sole proprietorship is also known as "proprietorship". Investopedia explains Sole Proprietorship
There is no separate legal entity created by a sole proprietorship, unlike corporations and limited partnerships. Consequently, the sole proprietor is not safe from liabilities incurred by the entity. The debts of the sole proprietorship are also the debts of the owner. However, all profits flow directly to the owner of a sole proprietorship.

The benefit of the sole proprietorship is the tax advantage. The disadvantage of a sole proprietorship is obtaining capital funding, specifically through established channels, such as equity (selling shares) and obtaining bank loans or lines of credit. As a business grows it often transitions to a limited liability company (LLC) or S corporation.

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