For working capital, 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. 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.
Typical Characteristics of a Sole Proprietor
- 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
Is registration of a Sole Proprietorship legally required?
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.
What are the 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.
