Characteristics of Sole Proprietorship |

Sole proprietorship Tax | Finance

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Management Notes

Characteristics of Sole Proprietorship:

Sole proprietorship is a form of business run by a single person and in which there is no distinction between the owner and the business. It is also called sole trading and who carries on business of sole trading is called sole trader. The main feature of such type of business structure is that the individual assumes full responsibility for all the risks connected with the conduct of the business.

Characteristics of Sole Proprietorship

Single Ownership:

In Sole proprietorship only one person owns the whole business and the business is exclusively in the hand of that person. He invests or provides the entire capital either from his private resources or by borrowings.

One-man management and control:

In Sole proprietorship ,the owner himself manages and makes all the business decisions. He formulates plans and control business according to his desire and capability.

Unlimited Liability:

In Sole proprietorship there is the disadvantage of unlimited liability.He/She is personally liable for business debts. His/Her individual property can be used to pay liabilities or pay tax .Hence,creditors are entitled to have claim even on his private property.

No sharing of profit and loss:

The proprietor has the sole right on the profit of the business and if there is loss he has to suffer alone. The sole trader takes all the risks and, bears all losses and receives all profits which makes owner to work hard.

No secrete entity:

In Sole proprietorship the proprietor and business are not separate entities legally. Loss in business is his loss and liabilities of the business are its liabilities. Hence, law makes no distinction between the proprietor and business. All the activities are done in the name of the owner. He has individual accountability.

Limited Operations:

Sole proprietorship Concern has limited resources and managerial skills. It is confined to local areas. The operations are limited by capital, management skill and time of owner. Hence, it has generally a limited area of operations.

Freedom:

A sole trader can start any legal business according to his choice and means. He can start and close the business at any time without any formalities. He can easily expand, change or reduce his business. There is no restriction on it. However, he cannot start any business on which some legal restrictions are imposed.

Secrecy:

It is very easy to maintain secrecy in sole trading. The owner himself makes all the decisions. He is not required to publish the accounts. He keeps all the business secrets to himself. Secrecy helps sole trader to face competition.

Personal relation:

A sole trader has always direct relations with his customers. He is able to attend to every aspects and attention are established under this form of organization. eg. doctor’s clinic,retailer,etc.

Lack of stability:

The life of sole trader business depends upon the life of the sole trader.Sole trading concern lacks stability.The business ends when the owner closes the business,dies or becomes insolvent.

Few Legal Formalities:

Sole trading concern is subject to few legal formalities. It is easy to start. But it must obey the laws.It is subject to minimum government regulations .The legal formalities are very few in comparison to others.

Sole proprietor tax:

Sole proprietor is a self-employed individual and must pay sole proprietor tax which is generally based on certain soul proprietorship tax rate based on the income of the business.As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately.Sole proprietor taxation is done likewise and tax benefits for sole proprietorship is also included.

Self proprietor:

Self proprietor is a self-employed individual and must pay sole proprietor tax based on the income of the business.Self Proprietor is an individual entrepreneur that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.

Note:

Business Loan for sole proprietor:

Business Loan for sole proprietor Starting and growing a business as a sole proprietor can be a difficult process with many obstacles, especially when it comes to finding the funds you need to get off the ground or expand your existing business. As a sole proprietor, you face a lot of risk in both the name of the business and to your personal credit.It can be difficult to secure financing for your business as a sole proprietor.

You need to open sole proprietorship bank account for funding. Banks and other lenders tend to view self-employed business owners as relatively high-risk entities, and for businesses just getting started, it can be an uphill battle to prove the strength of your business model to a lender.

Play Quiz

0% Which one of the following statements concerning a sole proprietorship is correct? the profits of a sole proprietorship are subject to double taxation. A sole proprietorship is designed to protect the personal assets of the owner. the owner of a sole proprietorship is personally responsible for all of the company's debts. there are very few sole proprietorship remaining in the U.S. today. A sole proprietorship is structured the same as a limited liability company. Correct! Wrong! Continue >> In a sole proprietorship, the profits earned by the business are: taxed as income for the business, but exempt from the personal income tax paid by the owner. taxed at the lowest corporate rate. the property of the owner, except for taxes owed to the government. tax-free if the appropriate exemption is filed with the local government. Correct! Wrong! Continue >> Which of the following is an advantage of a sole proprietorship? Limited Liability for its owners. double taxation for its owners. no significant legal requirements for starting the business. easily transferred ownership. Correct! Wrong! Continue >> A significant disadvantage of owning a sole proprietorship is the... overwhelming time commitment often required of the owner. heavy tax liability that must be assumed. lack of incentives to motivate the owner. possibility of limited liability. Correct! Wrong! Continue >> Which best explains why a sole proprietor would want a partner? to reduce the number of responsibilities. to make it easier to raise funds for expansion. to move into a more favorable tax bracket. to take advantage of little government oversight. Correct! Wrong! Continue >> Powered by WP Quiz Play Again!

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