Sole Proprietor

What is a Sole Proprietor?

A sole proprietorship is generally limited to the individual funds of the sole proprietor, along with any loans from outsiders willing to provide extra capital. There is no division between the owner ad the business. This means that the owner is responsible, in civil and criminal law, for actions conducted in the course of the business.

Typical characteristics of a Sole Proprietor

  • One owner.
  • Many small businesses operate as sole proprietorships.
  • Businesses that require the minimum amount of capital often operate this way.

Is the registration of a Sole Proprietorship required by law?

No. It is not necessary to register as a sole proprietor. This is because there is no division between the owner and the business. The owner will generally be responsible, in civil and criminal law, for actions conductions in the course of the business.

Pros and cons of operating as a Sole Proprietor

Advantages

  • Simple to form
  • No formalities required

Disadvantages

  • The sole Proprietor’s personal assets which are unrelated to the business are subject to claims of business creditors.
  • A sole proprietorship gives the least protection because the personal liability of the sole proprietor.
  • The proprietor carries the full risk of failure and this can result in sequestration (a process where the assets of the debtor are taken by a trustee to be distributed between creditors) of his or her personal estate.
  • Perpetual existence is not possible. If the owner dies the proprietorship comes to an end.