A sole proprietorship exists whenever an sole owner carries on business for their own benefit . A individual is the sole owner hence, the name sole proprietorship. The sole proprietorship is the simplest form of carrying on business.
Advantages of the Sole Proprietorship:
1 The sole owner of a sole proprietorship has total decision-making authority.
2. The sole proprietorship involves minimal legal formalities to begin.
The sole proprietor enjoys all the benefits (income) of a sole proprietorship.
All of the assets (equipment, inventory, property, etc.) of the business are owned by the sole proprietorship.
Disadvantages of the Sole Proprietorship:
The sole owner of sole proprietorship is personally responsible for all liabilities (losses, debts, expenses). Therefore, the sole owner is personally responsible for all financial responsibilities of the sole proprietorship.
If there are any lawsuits against a sole proprietorship, the sole owner will be personally liable for any judgment against the business. As such, the sole owner's personal assets such as his/her automobile, house, bank accounts are at risk.
For income tax purposes, the income or loss from a sole proprietorship must be included with the sole owner's other sources of income.
However, in some cases, the ability to apply losses to the sole owner'sl income from a sole proprietorship may be an advantage to the sole owner especially if there are other sources of income.
Trade names & Licenses
Some cities and states may require a sole proprietorship to be licensed in order to carry on business. For example, licenses may be required by real estate agents, electricians, restaurants, car dealers, to operate as sole proprietorships.
If a sole proprietorship wishes to carry on business using a name other than his/her own, then a trade name must be registered.