Sole Proprietorship in simple words is a one-man business organization. It is the type of entity that is fully owned and managed by one natural person (not a legal person/entity) known as the sole proprietor. The business and the man are the same; it does not have a separate legal entity.
A sole proprietorship usually does not have to be incorporated or registered. It is the simplest form of business organization and the ideal choice to run a small or medium scale business. Here in this article, let us look at some important features of a sole proprietorship registration.
- Lack of Legal Formalities
A sole proprietorship does not have a separate law to govern it. So there are not many special rules and regulations to follow. It does not require incorporation or registration of any kind. In most cases, only a license is required to carry out the desired business.
And just like in its formation, there is hardly any legal process involved in its closure. Overall it allows for ease of doing business with minimum hassles.
Since there is no separation between the owner and the business, the liability of the owner is also unlimited. So if the business is unable to meet its own liabilities, it will fall upon the proprietor to pay them. All of his personal assets (like his car, house, other properties, etc) may have to be sold to meet the liabilities of the business.
- Risk and Profit
The owner is the only risk bearer in a sole proprietorship. Since he is the only one financially invested in the company, he must also bear all the risk. If the business fails or suffers losses he will be the one affected.
However, he also enjoys all the profits from the business. He does not have to share his profits with any other stakeholders since there are none. So he must bear the full risk in exchange for enjoying full profits.
- Single Ownership
A sole trading concern is owned by one individual. It is run entirely at his risk of loss. The sole trader provides both capital and management to the business.
- Personal Organization or Common Identity
A sole trader’s concern has no separate legal entity independent of the owner. The owner and the business concern are one and the same. The owner owns everything the business owns and he owes everything the business owns.
In sole traders, the capital is employed by the owner himself from his personal resources. He may also borrow money from his friends and relatives if he cannot depend solely on his personal resources.
- Unlimited Liability
The liability of the proprietor for the debts of the business is unlimited. The creditors have the right to recover their dues even from the personal property of the proprietor in case the business assets are not sufficient to pay their debts.
Here in this article, we have understood the features of proprietorship firm, it will surely be useful for you to grow your business.
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