The History About Sole Proprietorship Law Company Business Partnership Essay

Published Date: 02 Nov 2017

It is such type of business in which a person himself is the owner of all the assets of the company and it is totally opposite of corporation and partnership, and such a person who does such kind of business is called as sole proprietorship. And in terms of business such a person who does business without officially making a company or business organization is known as sole proprietor. A sole proprietorship is a type of company which is not legally bounded to be registered with the state as a "limited liability company (LLC)" or as a corporation. It does not work as a separate legal entity and there are no legal formalities or any other licensing are necessary to create this business because it is not itself a legal entity or we called as a taxable entity. For this it is necessary to account all the income and expenses from the business being done on "Schedule C" of her or his private federal income tax return. In generally a sole trader gives the minimum protection because the private liability of the owner of this business is generally unlimited. In this case both the business and the personal assets of the sole trader are subject to claims of the sole trader's account payables or creditors. For working capital, this type of business is usually limited to the personal funds of the sole trader, and with the borrowings from outsiders willing to offer additional investment or capital. In this business the owner himself is also individually liable for all amounts outstanding and liabilities incurred by the business, and the time duration for this business are not fixed like a sole trader can have the business for any period of time and sell it when he or she sees it as reasonable. Like the proprietor, a sole trader can even transfer a business down to his or her family or heirs by his or her own wish. In sole proprietorship, there are no definite sole trader business taxes paid by the business or company. During the lifetime of this person, a sole trader can sell or give away any asset for the reason that the business is not lawfully separate from the sole trader. In the case of demise of the sole trader, the business is automatically dissolved. However, as this business is not a separate legal entity, it eventually finished as soon as the sole trader becomes disabled, retires, or dies. So because of this, a sole trader ownership structure lacks business permanence and does not have a continuous existence as does a company or any other business such as partnership.

Advantages of a Sole Proprietorship

The owner of this business has total control and decision-making authority over the organization or business.

The sole proprietor owns all and risks all. The total earnings of this business goes to his pocket, so this motivates the sole trader to put his efforts, heart and soul in the business to produce more and more earnings.

The secrecy is all time good in this case, as each and every feature of the business is looked after by the sole trader and the company or business secrets are known to him only.

As the sole trador business is undertaken on a small level so, if there any alteration is essential in business or company operations, it is simple and quick to get the changes by the owner easily without any interruption.

As it is not legally bounded to any of hard and fast rules so Sole trader business is the least regulated type of business. Laws which are regulated are almost negligible in its formation and in its day-to-day operation and dissolution.

This is not a taxable entity so No corporate tax payments.

The biggest advantage is that there is a Minimal legal cost to forming a sole proprietorship.

No requirements of licensing or anything needed in it just few formal business requirements.

In sole proprietorship No attorney is required for set up a business.

Like that of formation of this business, the dissolution of the sole trader business is also very simple. As we know that the proprietor is the supreme authority and only the owner of the business and no regulations are pertinent for closing of the business he can dissolve the business any time he may wish or like.

Disadvantages of a Sole Proprietorship

This business is not free from criticism; it might be suffered from limitations and other possibilities like this, because of its nature and scope of operations in which the owner operates his business.

Because of limited resources of this business, the financial resources of an individual are limited. The owner mainly finances his business from his own savings or borrows from friends or might be some financial institutions or relatives.

There exists a limited managerial capability as modern business requires modernized managerial skills in every activity which involve in performing different tasks. And we cannot hope a single person to have all the managerial skills and expertise which are necessary to carry on a business efficiently.

Because of unlimited liability of the owner, the private assets of the sole traders are also at risk. When the business fails, then the private assets of the owner are used to pay off the business amount outstanding to overcome that hurdle as there is no other option.

Due to uncertainty of continuity the business is unsure because the business may come to an end due to the incapability or death of the sole trader.

As there is only one person who is liable for everything so all responsibilities and business related decisions descend on the shoulders of the sole trader.

Usually Investors would not prefer usually to invest in sole proprietorships.