What is a Sole Proprietorship
Sole Proprietorship is a business owned by one person. It is the simplest type of
business to start and dissolve. The owner of this business is responsible for the losses, gains and all aspects of
this business venture.
There are few formalities necessary to form a sole proprietorship business, unlike corporations which require
extensive paper work. Starting a sole proprietorship business may require an application for a business license,
depending on the type of business, an occupancy permit for the location of your business, as well as a business
registration number. Your registration number will be used by the State in which you are operating your business to
keep track of tax collection and other matters related to your business.
There are many advantages to this type of common business
structure, especially for small business
Start up inexpensive and simple. All income that the business generates goes directly to the
owner. The owner makes all the decisions
regarding the business and does not report to anyone. Losses and gains of the business can be claimed on the
owners personal income tax.
This business structure is great for someone who is a self sufficient leader and wants to do ‘his own thing’, and
does not rely on others to make decisions. You run your own business, however you please and whenever you please.
You are completely in charge and there are no shareholders to report to. However, if your business grows and
succeeds, you have the option of changing the business structure to suit your needs, its success and
Sole Proprietorships, like other business structures have some disadvantages as well. Owning a Sole Proprietorship
business will have a direct impact on you personally, and financially. You are responsible for everything regarding
the business management and the day to day operations.
Being a one person operation means it is sometimes difficult to get start-up funding from outside sources such as
banks and other investors. You will have to work hard to convince lenders that your business will succeed. You will
need a well researched, and thought out business plan to help you. Most lenders want to see proof of success before
they give out loans to any new business venture. Unless you have solid proof that the business will succeed and the
research to prove it, it may be difficult to convince lenders and banks to lend you the money required to start
Depending on the type of small business, you will probably need to invest some of your own capital to get the business started. Once you
start making a profit, you can pay yourself back or reinvest in your business.
Sole Proprietorship business owners are held personally responsible for losses, damages and the debts of the
business. that occurs within the business. Personal assets are at risk if your business does not
This type of business structure, makes it difficult to keep business credit ratings, personal credit ratings and
assets separate from each other. The chance of getting a lender or investor for your business will depend largely
on your net worth and how well you handle your personal finances.
If you are a person who works well alone and would rather do it yourself, this business structure is an ideal
choice for you.