Sole Proprietorship

A sole proprietorship is the simplest form of business organization because it is run by just one person. There is little complexity in starting up a sole proprietorship because it may involve just getting a license and finding some premises. This is why most of the businesses are in the form of sole proprietorship. It is normally feasible for service providers such as physicians, freelancers, accountants, etc.

Advantages

1. The owner keeps all the profits.
2. There is little complexity in setting up a sole proprietorship.
3. Small amount of capital is sufficient for startup.

Disadvantages

1. It has unlimited liability of business debts which means that the debts that the owner obtains for the purpose of business are recovered from the personal assets of the owner if the business assets are insufficient to discharge them.
2. The income is taxed collectively with the owner's income from other sources this may make the owner liable to tax at a higher rate.
3. The life of a sole proprietorship is limited to the owner's life span.
4. Sole proprietorship's capital raising opportunity is limited mostly to the resources of the owner. This puts a constraint on the growth of business.
5. Ownership of a sole proprietorship may be difficult to transfer because this transfer requires the sale of the sale of the whole business to the new owner.

by Obaidullah Jan, ACA, CFA and last modified on Mar 13, 2019