by Angelina Moore

Created on: April 27, 2008

A sole proprietorship is a business owned by a single person who has unlimited liability. This is a legal obligation on the sole proprietor to settle all the debts of the business. In law, there is no distinction between the assets and debts of the business and the assets and debts of the owner.

Setting up a sole proprietorship can have many benefits these include: -

* The business is easy to set up. A sole trader can set up a business almost immediately. Once the owner has filled out important forms, there are not many, and has carried out the procedures, the business is then ready to take off.

* A sole proprietorship is easier to run than other types of businesses, such as franchising. The owner doesn't need to get the agreement of other owners to make changes to the business, this is less time consuming.

* The owner is effectively its own boss; they are in sole charge of the business and can decide any necessary changes to the business, for example, the business's operating times.

* The capital needed to set up the business can be just a few hundred pounds; it is not as expensive as other types businesses can be.

* A big bonus of the sole proprietor being his own boss is that they can keep ALL of the profit made. There is no need to split the money amongst other owners. There is a link between the success and money earned; the harder the sole trader works, the more profit he would gain.

* The sole trader can have choice as to the hours he or she chooses to work. This is beneficial as the sole trader can fit work around family life.

Although there are many benefits to becoming a sole proprietor, there are also disadvantages too. These include: -

* The business has unlimited liability, which can mean that if the business is unsuccessful the owners house could be repossessed as well as other high value items to pay back the debt.

* There is a lack of permanence. The sole trader has no guarantee that the business will survive. If the business stops trading this means that there is no income coming in, which can lead to failure of the business. If the sole trader becomes ill and is not able to work, the business stops operating. Also, there is no sick-pay so; there would be no income or profits coming in.

* At the start of the business the sole trader normally has to work long hours in order for the business to take off. Taking vacations can be taking out of the picture, because no one would be able to run the business.

* There is also limited specialization. The sole trader is responsible for all the tasks of the business for example, the work, accounting etc. Larger businesses are able to employ specialized people to carry out tasks, such as, accounting. However if the sole trader was to employ other people this would mean a loss in profit.

To become a sole proprietor a person needs to be determined and motivated in making the business a success.

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