Business: Sole Proprietorship Essay

1316 words - 5 pages

Sole Proprietorship

A sole proprietorship is a business owned and controlled by a single individual. There are more sole proprietorships than any other type of business available (Lau, 2011). It is a simple type of business to set up, as well as simple to terminate. The proprietor has the freedom to determine operating hours, what services or goods to provide, where it operates, and what contracts to enter into without needed to consult another party. With full control, however, comes full liability. A proprietor is personally liable for all financial obligations whether they be debts from company operations or restitution ordered to be paid from third party suits. It can also be difficult to secure financing for a sole proprietorship as banks look at the business as an individual. Often, banks will treat loans to proprietorships as personal loans to the proprietor and require collateral.

Liability. All liability rests with the owner of the sole proprietorship. This can put the proprietor in a very difficult position if an individual were to sue the business. The courts consider the proprietor and proprietorship as one so when the business is sued, they are essentially suing the proprietor. All the proprietor’s personal assets such as their house, car, retirement account, and bank account are at risk. Debts the business is unable to cover must also transfer to the proprietor.
Income tax. The proprietor and their business are seen as a single individual by the government. As such, they are taxed together, once, as personal income tax. All profits gained through the sole proprietorship are direct income for the proprietor and are taxed as such. Any business expenses or losses can be deducted from their personal income total.
Longevity. While a proprietorship can be sold, it typically lives and dies with the proprietor. Other arrangements would need to be made ahead of time if the proprietor wishes the business to continue on without them. If the proprietor wishes to dissolve the company, they can do so by fulfilling any outstanding obligations the business has made.
Control. Ultimately, a sole proprietorship is controlled entirely by its creator. They may choose to hire an individual to manage their company, but the proprietor has final say in all decisions (Stevick Jr., 2006). No other individual may override the proprietor as long as they are operating within the law.
Profit Retention. All profits for a sole proprietorship are direct income for the proprietor with no profit sharing needed. Since no other individual can lay claim to the profits, the proprietor has the potential to regain their full initial investment quickly. The amount of profit earned depends entirely on the success of the business.
Location / Expansion. A proprietorship can be moved to another location without any permission and can change in any way the proprietor wishes within legal constraints. If the proprietorship wishes to operate in a new state, new...

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