Sole Proprietorship: A Suitable Form of Business Ownership

This report discusses sole proprietorship as a form of business ownership. It explains the advantages and disadvantages of this ownership type and highlights its suitability for small businesses.

ASSESSMENT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
REPORT..........................................................................................................................................1
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUTION
The first step for entrepreneur setting up the business is to identify through which it will
embrace on the business journey. It is essential for the business to identify the best way through
which it will be moving forward. There are different forms of business ownership that the
entrepreneur could use, however the size and nature of the business have to be considered before
forming the ownership. In the report Sole proprietorship business ownership will be discussed as
it is considered the most appropriate form of business.
REPORT
Sole Proprietorship
Sole proprietorship is basic for the business ownership, in which only one individual is the
sole owner who will be responsible for business. This form of business does not have separate
legal entity as in the case of corporation. In this business sole proprietor will be responsible for
all the affairs and transactions for the business. This is common business form for the small
businesses. The sole proprietor is solely responsible for the debts and the obligations for business
on personal level. In exchange of that liability owner keeps all profits gained from business. This
form of the business ownership is inexpensive and easy to establish (Kasahun, 2020). Sole
proprietor is not required to comply with high government regulations as in case of other forms
of business. This makes it more flexible ownership type with the complete control at discretion
of owner.
Advantages
In this form of ownership the profit is shared by the sole proprietor alone and there is no
sharing like in partnership and company. Sole proprietor business has passed through taxation.
Return is not filed in the name of business and but income is taxed in the personal income tax by
Schedule C. The liability of the owner is unlimited for the business and it may even extend to
personal assets of owner. However, this risk could be mitigated through insurance and strong
contracts. In this business owner have complete control over the business and does not required
to follow a strict organisational structure needed by laws (Darmansyah, 2018). The sole
proprietors are not required to prepare financial statement as they are not required to present the
financial information to outsiders. However they may prepare the accounts and accounting
records for the business to make allocation of resources.
Disadvantages
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Some of the drawbacks of sole proprietorship are that owners have personal exposure to
the risk of business for all the liabilities and obligations. The investors rarely invest in this type
of business. This is suitable only for the small business, and not suggested for business at large
scale.
CONCLUSION
It could be concluded from the above report that there are different form of ownership in
which sole proprietor is considered to be most suitable. The owners have sole control over the
business with unlimited liability. It is most suitable for small business as they are not required to
pay establishment charges or to comply with legal requirements after establishment like in other
forms.
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REFERENCES
Books and Journals
Kasahun, A.K., 2020. The Impact of Working Capital Management on Firms’ Profitability-Case
of Selected Sole Proprietorship Manufacturing Firms in Adama City. IOSR Journal of
Economics and Finance (IOSR-JEF). 11(1). pp.45-55.
Darmansyah, A., 2018. Comparative Analysis of Bookkeeping at Sole Proprietorship and
Partnership Small and Medium Enterprises: Study on Culinary Sector in Greenville,
Jakarta.
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