Definition of Sole Proprietorship
Sole Proprietorship by definition is an unincorporated business which has only one owner and is one of the simplest businesses to set up and is a very popular choice of most of the business men today. A Sole Proprietor is the owner of the company and does not have to pay taxes of the business separately but has to provide with the details of his business profits and losses as an individual income tax return. Most businessmen prefer sole proprietorship as they would not have to think of names to run as a company but can be named after the sole proprietor himself.
Features of Sole Proprietorship
Sole Proprietorship is a business that is owned by a single individual that makes management of the company easier for the owner as he would not have to wait for meetings and other such occasions to make the necessary decisions. The profits gained and the losses incurred are of the sole proprietor alone. The risks involved in this business are comparatively minimal, and when the proprietor wants to dissolve his business he can.
Advantages of Sole Proprietorship
The following are the advantages of Sole Proprietorship:
- Complete control is exercised by the sole proprietor alone and he is responsible for all the decisions that are to be made.
- The business takes place only under the guidance of the sole proprietor alone.
- Sole proprietorship ensures that the profits gained and losses incurred are of the sole proprietor alone and he is not responsible for any other.
- There are very few business formalities that are required by a sole proprietorship.
- There are no company tax payments and there are very minimum legal costs that a proprietor has to form a sole proprietorship.
Disadvantages of Sole Proprietorship
The following are the disadvantages of a Sole Proprietorship:
- Being wholly responsible for all the decision making the entire burden lands on the shoulders of a sole proprietor
- If the business faces losses the sole proprietor alone is responsible for all the losses incurred.
- No investor would invest in a sole proprietorship which means that the sole proprietor would have limited capital to deal with.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
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Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Break-even Point
- Debt Service Coverage Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
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