Sole Proprietorship

The three most common forms of business ownership are sole proprietorship, partnership and corporation. Each form of ownership has a characteristic internal structure, legal status, size, and field to which it is best suited. Each has key advantages and disadvantages and offers employees a distinctive working environment with its own risks and rewards.

Sole proprietorship. The oldest, most common form of private business ownership is the sole proprietorship. A sole proprietorship is a business owned and managed by one individual. That person may receive help from others in operating the business but is the only boss; the sole proprietor is the company.

Typically the sole proprietor owns a small service or retail operation, such as a roadside produce stand, hardware store, bakery, or a restaurant. The sole owner, often aided by one or two employees, operates a small shop that frequently caters to a group of regular customers. The capital (money) needed to start and operate the business is normally provided by the owner through personal wealth or borrowed money.

The sole proprietor is usually an active manager, working in the shop every day. He or she controls the operations, supervises the employees, and makes the decisions. The managerial ability of the owner usually accounts for the success or failure of the business.

Advantages of sole proprietorship. The sole proprietorship has a number of advantages. One is ease of establishment. In essence, all you have to do to launch a sole proprietorship is to open your door and start selling your goods and services. Your financial investment need not be large, and the legal red tape is minimal.

A second advantage is independence. As a sole proprietor, you have the satisfaction of working for yourself. You can make your own decisions - what hours to work, whom to hire, what prices to charge, whether to expand, and whether to shut down. You can see directly the results of your own efforts and keep all the profits.

Secrecy is another benefit of sole proprietorship. You do not have to reveal your performance or plans to anyone except the Internal Revenue Service. Furthermore, sole proprietorships present tax advantages, because proprietors pay taxes only on the personal income they earn from their businesses. As business grows and become more profitable, proprietors have the option of incorporating to obtain other kinds of tax advantages without giving up ownership.

Disadvantages of sole proprietorships. There are also some disadvantages in operating a proprietorship. Sole proprietorships usually start with limited resources as well. Not only is an individual likely to have less capital than a group of individuals, but banks are also less willing to lend money to individuals that to large corporations; and lending institutions charge higher interest rates to smaller companies, too. The sole proprietor’s independence may be a negative as well as positive feature - the prosperity of the business depends largely on the talents and managerial skills of one person. If managerial problems crop up, the sole proprietor may be too personally involved in the business to seek aid. In addition, qualified help costs money, which the proprietor may be unwilling or unable to pay. Another major disadvantage is the proprietor’s unlimited liability. Any damages or debt that can be attributed to the business can also be attached to the owner. The two have no separate legal existence. If the business suffers big operating losses, the owner is liable and might have to sell personal assets, like the family’s home, to satisfy a business debt. A final disadvantage is that proprietorships have a limited life. When the proprietor dies, the business often dies, too. Generally, owners who want to make sure their businesses grow and continue without them must form a partnership or corporation or merge with a larger business.

1. Who owns a sole proprietorship?

2. Who keeps the profits of a sole proprietorship?

3. Why are sole proprietorships easy to a) set to and b) run?

4. What happens to a sole proprietorship if the owner falls ill or dies?

5. Why do sole proprietors often find it difficult to raise the money to start a business?

6. What are advantages and disadvantages of a sole proprietorship?

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Read the following text and be ready to speak on partnership focusing

on advantages and disadvantages of this form of business organisation.