Characteristics, Advantages and Disadvantages of Sole Proprietorship

This report provides an overview of sole proprietorship as a business ownership structure. It discusses the characteristics, advantages, and disadvantages of sole proprietorship, including the freedom from legal liabilities, the individual ownership and management, unlimited liabilities, and decision-making power. The report also highlights the advantages of sole proprietorship, such as complete control and minimal legal costs, as well as the disadvantages, such as business continuity issues and difficulty in raising capital. References to relevant books and journals are provided for further reading.

Assessment

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Definition....................................................................................................................................3
Characteristics of Sole Proprietorship........................................................................................3
Advantages and Disadvantage of Sole Proprietorship................................................................4
.........................................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business is an activity of earning money by making exchange transactions by offering
needed products and services to buyers and getting money in return. Business has number of
ownership structures which are registered in legal structures and chosen according to size, scope
and nature of the offerings. The present report is developed upon a single business ownership
that is Sole Proprietorship in which its characteristics, advantages and disadvantage are
highlighted (Dungan, 2017).
MAIN BODY
Definition
Sole Proprietorship is known by number of names like individual entrepreneurship, sole
trader or a proprietorship. This is a typical business ownership which is incorporated and owned
by one single owner. The legal structure of a Sole Proprietorship is the simplest amongst all
business entities.
Characteristics of Sole Proprietorship
There are several characteristics and features of a Sole Proprietorship business model
which are as follows:
 Free From Legal Liabilities- The major characteristics of Sole Proprietorship is it is less
bounded by legal formalities and regulations in comparison with other business
ownerships (Kuter and Gurskaya, 2020). A Sole Proprietorship is less complicated to
establish and getting registered.
 Owned and Managed by Individual- A Sole Proprietorship is managed and opened by a
single owner and individual who is responsible for all profits and losses and takes up all
actions to perform for conducting functions of business and earning revenues (Kim, Lee
and Sohn, 2020).
 Unlimited Liabilities- A Sole Proprietor who manages and runs the business is
responsible for all the actions, enjoy all benefits attached, pay all the losses and bears all
the expenses. Thus, a sole proprietorship is filled with unlimited liabilities which is
borne by the sole proprietor
 Full Decision Making power- Another characteristics of a Sole Proprietorship is the
decision making power is in hands of single individual who runs and owns the business.

Advantages and Disadvantage of Sole Proprietorship
Advantages of Sole Proprietorship Disadvantages of Sole Proprietorship
 A sole proprietor has complete control
and decision-making power over the
business which enable them to keep the
firm in full control of themselves and
make decisions faster when needed
(Villaluz and Hechanova, 2019).
 Minimal legal costs to forming a sole
proprietorship. Is its biggest
advantage as the owners do not need go
through complex and processes and
invest huge money in getting the firm
registered.
 The profits and other related benefits
attached to the business transaction
being made will be enjoyed by the sole
proprietor alone and discretely.
 Owners are fully liable. If business
debts become overwhelming, the
individual owner's finances will be
impacted as they have to pay liabilities
through their profits and even from
their personal savings.
 Self-employment taxes apply to sole
proprietorships, that is the proprietor
who is managing and running business
operations is taxed twice on the same
income.
 Business continuity ends with the death
or departure of the owner, which means
the company if not extended to other
before death or departure of the owner
the Sole Proprietorship end and lose its
registration (Chandra, 2020).
 Raising capital is difficult for a Sole
Proprietorship as the success
percentage is low and investors do not
agrees to invest.
REFERENCES
Books and Journals

Chandra, P., 2020. Fundamentals of Financial Management|. McGraw-Hill Education.
Dungan, A., 2017. Sole Proprietorship Returns, Tax Year 2015. Statistics of Income. SOI
Bulletin, 37(2), pp.2-28.
Kim, H. J., Lee, B. K. and Sohn, S. Y., 2020. Comparing spatial patterns of sole proprietorship
and corporate payday lenders in Seoul, Korea. The Annals of Regional Science, 64(1),
pp.215-236.
Kuter, M. and Gurskaya, M., 2020, May. Features of Accounting on Household Goods Accounts
in Early Sole Proprietorships. In International Conference on Integrated Science (pp.
164-173). Springer, Cham.
Villaluz, V. C. and Hechanova, M. R. M., 2019. Ownership and leadership in building an
innovation culture. Leadership & Organization Development Journal.