Introduction to Sole Proprietorship

Topics: Corporate tax, Business law, Legal entities Pages: 8 (2559 words) Published: October 14, 2012
A 'sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. It is a "sole" proprietorship in contrast with partnerships. Glos and Baker write that "A sole proprietorship is a business owned by one person who is entitled to all of its profits," and Reed and Conover say "The single or the sole proprietorship is a business owned and controlled by one man even though he may have many other persons working for him." A sole proprietor may use a trade name or business name other than his or her legal name. In many jurisdictions there are rules to enable the true owner of a business name to be ascertained. In the United States there is generally a requirement to file a doing business as statement with the local authorities.[1] In the United Kingdom the proprietor's name must be displayed on business stationery, in business emails and at business premises, and there are other requirements.[2] Advantages

They have the ability to raise capital either publicly or privately, to limit the personal liability of the officers and managers, and to limit risk to investors. Sole proprietorships also have the least government rules and regulations affecting it. Owners have complete control over all the aspects of his business and can take any managerial decisions that he/ she wants to take. Disadvantages

Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize;[3] other types of business entities have more documentation. As a business becomes successful, the risks accompanying the business tend to grow.[citation needed] One of the main disadvantages of sole proprietors is unlimited liability where the owner's personal assets can be taken away. This is particularly true for liabilities created by employees; a corporation only partially shields an owner or officer for his own actions according to the principle of piercing the corporate veil. Another disadvantage is a lack of continuity. The enterprise may be crippled or terminated if the owner becomes ill. Since the business is the same legal entity as the proprietor, it ceases to exist upon the proprietor's death. Because the enterprise rests exclusively on one person, it often has difficulty raising long-term capital.

Why a Business Name is so Important
The first step any business owner makes in the checklist of "to do" items when starting a business is the selection of a business name. The right business name is important because all other business legal decisions are based on the business name. For example: •Business cards, stationery, and office forms will carry the business name. •All advertising and marketing materials will feature your business name. •Business name is on all business formation documents, such as Articles of Organization for an LLC or Articles of Incorporation for a corporation. •Business loans are given to a specific business, which is named in all loan documents. •Many companies use their business name as their domain name for the company web site. •The business name is registered with the locality and state where the business is organized. If the business operates under another name, it must file a fictitious name ("doing business as") statement. •The business name is on all contracts and agreements made by the company. You can see how important a business name and why it must be the first step you take in starting your business. Considerations in Selecting a Business Name

Before you select a...

Links: • Manila | Virtual
All-in-One Cost Effective Solution. Special Offer - Up to 50% OFF Now!
• Japan Property
18 October 2012. Free Admission, By Registration Only From Here!
• US Company
Offshore US LLCs in 1-2 days Free consultation
• Best Dividend
Build a dividend-paying portfolio using Warren Buffett 's Strategy.
Read more: The Disadvantages of Sole Proprietorship |
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Sole Proprietorship Research Paper
  • Sole Proprietorship Essay
  • Sole Proprietorship Essay
  • Essay on Sole Proprietorship
  • Sole Proprietorship Essay
  • Sole Proprietorship Essay
  • Essay on Sole Proprietorship
  • Sole Proprietorship Essay

Become a StudyMode Member

Sign Up - It's Free