A sole proprietorship is a type of enterprise that is formed, financed, and run by a single person with the main aim of making a profit. The proprietor usually pays income tax on the earnings that he or she receives from the business.
1. It's fairly easy to set up. A sole proprietor only needs to register their business name and pay for the relevant trading licenses to begin operations.
2. The sole proprietor doesn't have to file two separate tax returns, since the income from the business passes through them. The owner only needs to file income tax returns.
3. Since the sole proprietor is the one in charge of everything, decision-making is fast.
Despite all the advantages, a sole proprietorship is very risky since the owner's property can be used to settle overdue debts. There's no separation between the business and the owner.
For a person who is venturing into business for the first time, sole proprietorship is appropriate due to the tax advantages it gives the owner. However, as the business grows, the person should change it into a limited liability company to protect their assets from liability claims.