Proprietorship
What Is a Sole Proprietorship?
A sole proprietorship also referred to as a sole trader or a proprietorship, is an unincorporated business that has just one owner who pays personal income tax on profits earned from the business.
A sole proprietorship is the easiest type of business to establish or take apart, due to a lack of government regulation. As such, these types of businesses are very popular among sole owners of businesses, individual self-contractors, and consultants. Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary.
A sole proprietorship is very different from corporations (corp.), partnerships or limited liability partnerships ( LLPs), in that no separate legal entity is created. As a result, the business owner of a sole proprietorship is not exempt from liabilities incurred by the entity.
For example, the debts of the sole proprietorship are also the debts of the owner. However, the profits of the sole proprietorship are also the profits of the owner, as all profits flow directly to the business's owner.
Advantages of Proprietorship-
- Sole Ownership of business/Profession.
- The owner is in complete control and gets all the profits.
- Easy and cost effective formation.
- Low Tax rate on income from proprietorship.(as they get the benefit of threshold).
Disdvantages of Proprietorship-
- Unlimited liability of Owner.
- Difficulty in getting capital funding and loan.
- No seperate legal Status.
- The owner's personal finances and business finances are one and the same.
The formation of proprietorship is suitable for single owner and micro businesses who does not seek fundings or other lines of credit.