What is Sole Proprietorship?

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A sole proprietorship is owned by one individual. Sole proprietorships are the most numerous of the three types of organizations ie., sole proprietorship, partnership, and corporation. The typical sole proprietorship is a small business; usually, only the proprietor and a few employees work in it. Funds are raised from personal resources or through borrowings. The sole proprietor makes all the decisions. There is no legal distinction between the owner and the business entity. Sole proprietorships are common in the retail, wholesale, and service industries.

Advantages of a sole proprietorship

  • No formal charter is required.
  • Organizational costs are minimal.
  • Profits and control are not shared with others.
  • The income of the business is taxed as personal income.
  • Confidentiality is maintained.

Disadvantages of a sole proprietorship

  • The ability to raise large sums of capital is limited.
  • Unlimited liability exists for the owner.
  • The life of the business is limited to the life of the owner.
  • The sole proprietor must be a “jack-of-all-trades.”

A. Sulthan

Author and Assitant Professor in Finance

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