A sole proprietorship is a business owned and operated by one individual.
This form of business where one person owns all the assets of the business means that if the business fails, any of your assets, including your personal assets, can be seized to pay for all the liabilities owing.
- This type of business enterprise has one owner
- Many small businesses operate as sole proprietorships
- Businesses that require minimum amounts of capital often operate this way.
No, it is not necessary to register as a sole proprietor.
Because there is no division between the owner and the business, the owner will generally be responsible, in civil and criminal law, for actions conducted in the course of the business.
Registering with SARS
The sole proprietorship itself is not separately taxed on its income. Instead, the sole proprietor reports business income and expenses on his or her own tax return.
Renting staff and renting premises
A sole proprietor can employ staff and still be the sole owner.
What makes a SP differ from a CC pr private company is the owner is personally responsible for debts incurred by the business. Loans taken out for this type of business are taken out in the owner’s name.
That means that the owner stands to lose everything, including his private estate if the business fails.
What are the pros and cons of operating as a Sole Proprietor?
- Simple to form
- No formalities required
- The sole Proprietor’s own 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.