A sole proprietorship, also known as the sole trader or simply a proprietorship. It 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 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. A sole proprietor may use a trade name or business name other than his or her legal name.
- It is easy to organize this business. Only small amounts of capital are needed to start and run a business.
- It permits a high degree of flexibility to the owner since he/she is the boss of the business establishment.
- 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. Other types of business entities have more documentation.
- Has limited resources. Banks are reluctant to grant loans to proprietorship considering its small assets and high mortality rate.
- Unlimited liability for business debts. The single owner is responsible for paying all debts and damages of their business.
- If the firm fails, creditors may force the sale of the proprietor’s personal property as well as their business property to satisfy their claim.
- When the owner dies, the continuation of the business is difficult, because a new owner must typically accept all liabilities of the business.
Are you a Sole Proprietor? Are you thinking about creating an entity? Schedule an appointment with a LOKK Attorney to see whether creating a entity is right for you.