Sole proprietorship, its advantages and disadvantages

What is Sole proprietorship, its advantages and disadvantages? Are you someone who is planning to start a business involving only yourself? Then, this article is for you. Read this to know about sole proprietorship, its advantages and disadvantages before deciding your business plans. Also, this article will help you to clarify the doubts between sole proprietorship and partnership business styles. Further, it will give the facts upon why to choose sole proprietorship for your business.

What is Sole proprietorship?

Sole proprietorship refers to a business or organization that is owned and controlled by a single person. That individual is solely responsible for all the decisions that has been made for their business or organization. On the same page, the same individual takes the profit or loss made with business. Also, they have to pay personal income tax from the profits earned in their business or from their organization. In this, the individual uses their capital, ideas, skills and is solely responsible for the results obtained.

This sole proprietorship is different from doing partnership businesses as how there is a difference between entrepreneur and intrapreneur. In fact, sole proprietorship is also known as individual entrepreneurship and as sole trader. With this process of knowing what is sole proprietorship, it is also vital to know its advantages and disadvantages. To get the clear cut idea and perspective on sole proprietorship for business. There are various types of sole proprietorships such as independent contractors, business owners and franchise owners. Select the kind of proprietorship according to the business. Before getting into sole proprietorship, it is useful to know about how to start a sole proprietorship.

The ultimate characteristics of sole proprietorship include ownership by one person, freedom of work and decision making, option of unlimited liability, freedom of formation as well as closure and the right to enjoy the profits solely. All the sole traders are expected to know the subjects for business management at least at the basic level. In the same way, sole proprietorship has the characteristics to take control of both success and failures involving risks and hurdles.

Advantages of sole proprietorship

There are numerous advantages of sole proprietorship. The top most is the flexibility in the case of sole proprietorship. As an individual, one can run their business according to their flexibility and convenience. This rejects the criteria to depend on others such as partners or co-workers. Additionally, one can preplan or postpone their business meetings or campaigns as per their availability. It completely depends on a single soul.

Another important advantage of sole proprietorship is the freedom of decision making. One of the difficulties faced in partnership businesses include the lack of freedom of decision making. But, in sole proprietorship, it is as easily available as the control towards the business. It doesn’t give chances for the situations like cat on the wall when it comes to the art of decision making. The sole trader holds the power of it. In sole proprietorship, there is no need of any legal formalities while starting a business. But the needed licenses are mandatory in it.

One of the convincing factors in sole proprietorship is the fact that with small capital, one can start the business. The capital depends on the business type that you are planning to begin. But it will not require a huge capital rather than a small capital. This helps the sole traders to avoid paying taxes separately for their business. These are the notable advantages of sole proprietorship.

Disadvantages of sole proprietorship

The disadvantages of sole proprietorship are as equal to its advantages. In few cases, the advantages itself has turned to be its disadvantages. The primary disadvantage of sole proprietorship is the limitation of capital in business. Since the sole trader is putting their own money, it cannot be of huge amount. There will be no share holders or partners and the capital depends only on the sole traders. There is also no opportunity provided for business loans in case of sole proprietorship. This is because the banks consider sole proprietorship is highly risk based one. Hence, it has only limited capital as invest.

When sole proprietorship enjoys the whole profit, it also has to bear the debts in case if a business falls. In such situations, the sole trader’s personal assets taken to clear the debts and to pay the creditors. Here, the personal assets meet the risk of leaving hands. Another disadvantage of sole proprietorship is the difficulty to collab with other fields of business. Due to the fact that it has small capital and limited exposure, the chances to collab with others might be impossible. Since it needs certain capital to invest for collaboration with other businesses. Sometimes, the decisions made without consulting from others will also end in hurdles and risks.

These are the advantages and disadvantages seen in sole proprietorship. Hope this information on sole proprietorship, its advantages and disadvantages will help you to decide cleverly before taking the first step towards sole proprietorship.