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A sole proprietorship , also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the
business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on ...
. A sole trader does not necessarily work "alone"—it is possible for the sole trader to employ other people. The sole trader receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. It is a "sole" proprietorship in contrast with
partnership A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, alliance. This relationship may be a contractual, exclus ...

partnership
s (which have at least two owners). A sole proprietor may use a
trade name A trade name, trading name, or business name is a pseudonym A pseudonym () (originally: ψευδώνυμος in Greek) or alias () is a fictitious name that a person or group assumes for a particular purpose, which differs from their original ...
or business name other than their or its legal name. They may have to legally trademark their business name if it differs from their own legal name, the process varying depending upon country of residence.


Advantages and disadvantages

Registration of a business name for a sole proprietor is generally uncomplicated unless it involves the selection of a name that is fictitious, or “assumed”. The business owner is required to register with the appropriate
local authorities Local government is a generic term for the lowest tiers of public administration within a particular sovereign state A sovereign state is a political entity that is represented by one centralized government that has sovereignty over a geograp ...
, who will determine that the name submitted is not duplicated by another
business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on ...
. Furthermore, the business owner must complete a form submitted to the governing authority to acquire title as a “DBA” or "
doing business as A trade name, trading name, or business name is a pseudonym A pseudonym () (originally: ψευδώνυμος in Greek) or alias () is a fictitious name that a person or group assumes for a particular purpose, which differs from their original ...
”. The authority in some US states is the Secretary of State. The license for a sole proprietary business entitles the owner to hire
employees Employment is a relationship between two parties, usually based on contract A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is le ...

employees
and enlist the services of independent consultants. Although an employee or consultant may be requested by the owner to complete a specific project or participate in the company's
decision-making In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the Cognition, cognitive process resulting in the selection of a belief or a course of action among several possible alternative options, it could be ...
process, their contribution to the project or decision is considered a ''recommendation'' under the law. Under the
legal doctrine A legal doctrine is a framework, set of rules, Procedural law, procedural steps, or Test (law), test, often established through precedent in the common law, through which judgments can be determined in a given legal case. A doctrine comes about w ...
''Respondeat superior'' (
Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Roman Republic, it became ...

Latin
: "let the master answer"), the
legal liability In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its b ...
for any business decision arising from such a contribution remains upon the owner and cannot be renounced or apportioned. This is transposed by the unlimited liability attached to a sole proprietary business. The owner carries the financial responsibility for all
debts Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to ...
and/or losses suffered by the business, to the extent of using personal or other assets to discharge any outstanding
liabilities Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, the area of law in which manufacturers, distributors, suppliers, re ...
. The owner is exclusively liable for all business activities conducted by the sole proprietorship and accordingly, entitled to full control and all earnings associated with it. The general aspect according to the general business law is that this type of business owner does not embody a “
legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by it ...
” Furthermore, any attempted and unreliable distinctions of the business do not change the classification under this title.


Rules for sole proprietorships in different countries


Netherlands

In the
Netherlands ) , national_anthem = ( en, "William of Nassau") , image_map = EU-Netherlands.svg , map_caption = , image_map2 = BES islands location map.svg , map_caption2 = , image_map3 ...

Netherlands
, a sole trader is called a "ZZPer". Any sole trader needs to register with the
Chamber of Commerce
Chamber of Commerce
and get a VAT ID.


Ireland

In
Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic. It is separated from Great Britain to its east by the North Channel (Great Britain and Ireland), North Channel, the Irish Sea ...

Ireland
, a sole trader who wishes to use a business name must register that name with the Companies Registration Office (CRO).


Malaysia


Registration of sole proprietorships

In
Malaysia Malaysia ( ; ) is a country in Southeast Asia Southeast Asia, also spelled South East Asia and South-East Asia, and also known as Southeastern Asia or SEA, is the geographical southeastern subregion of Asia, consisting of the regions ...

Malaysia
, there are three different laws governing the registration and administration of sole proprietors:- # West Malaysia and the Federal Territory of
Labuan Labuan (; : ), officially the Federal Territory of Labuan (: ''Wilayah Persekutuan Labuan'', Jawi: ), is a of . Its territory includes and six smaller islands, off the coast of the state of in . Labuan's capital is and is best known as an ...
: Registration of Business Act 1956 (Act 197); #
Sarawak Sarawak (; ) is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper i ...

Sarawak
: Businesses, Professions and Trade Licensing Ordinance arawak Chapter 33 & Business Names Ordinance for the State of Sarawak arawak Chapter 64and #
Sabah Sabah () is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Co ...

Sabah
: Trades Licensing Ordinance for the State of Sabah abah Chapter 144 In West Malaysia, the registration of sole proprietors come under the purview of the
Companies Commission of Malaysia The Companies Commission of Malaysia ( ms, Suruhanjaya Syarikat Malaysia, abbreviated SSM), is a statutory body formed under an Act of Parliament that regulates corporate and business affairs in Malaysia Malaysia ( ; ) is a country in Southeas ...
(''Suruhanjaya Syarikat Malaysia'', or abbreviated as ''SSM''). In Sabah and Sarawak (with the exception of Kuching), the registration of businesses are done at the local authorities (e.g. municipal councils or district offices) while in
Kuching Kuching (), officially the City of Kuching, is the capital and the most populous city in the States and federal territories of Malaysia, state of Sarawak in Malaysia. It is also the capital of Kuching Division. The city is on the Sarawak River ...
, sole proprietors are registered with the Kuching Office of the Malaysian Inland Revenue Board. Sole proprietors, which includes the self-employed, must register with the relevant authority within thirty days from the commencement of their business. Sole proprietors may register their business using one of two names: (1) their legal name following the registrant's identity card or (2) a trade name. Registration of a business lasts either one or two years, and must be renewed thirty days before its expiry. In the event of termination of business, the proprietor has thirty days from the termination date to file the notice with the relevant authority. If the termination is caused by the death of the proprietor, the administrators of the estate has four months from the death date to file a notice of termination.


Goods and services tax (GST)

Sole proprietors must register with the Royal Malaysian Customs Department to charge and collect goods and services tax (GST) once their taxable turnover within a 12 month-period exceeds RM500,000.


Sole proprietors as employers

Similar to other Common Law jurisdiction, proprietors may enter into contracts of employment and/or apprenticeship with their employees. Sole proprietors, as employers, are responsible to: * Make contribution to their employees' Employees Provident Fund; and * Pay contribution to their employees' Social Security.


Online businesses

In 2016, the SSM took legal action against 478 online businesses who fail to register their businesses whether as sole proprietors, partnerships, or private limited companies. As at May 12, 2017, a total of 50,882 online businesses have registered with the SSM since 2015.


New Zealand

Sole traders in
New Zealand New Zealand ( mi, Aotearoa ''Aotearoa'' (; commonly pronounced by English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon Engl ...
must notify the Inland Revenue Department that they are trading and must register for
Goods and Services TaxGST may refer to: Taxes * Sales tax, General sales tax * Generation-skipping transfer tax, in the United States * Goods and Services Tax, the name for the value-added tax in several jurisdictions: ** Goods and Services Tax (Australia) ** Goods and ...
purposes if their income exceeds $60,000 per year. Sole traders may obtain a unique New Zealand Business Number (NZBN), which any business in New Zealand can use to identify the business in commercial relationships and dealing with government.


United Kingdom

A sole trader is the simplest type of business structure defined in UK law. It refers to an individual who owns their own business and retains all the profits from it. When starting up, sole traders must complete a straightforward registration with
HM Revenue and Customs , type = Non-ministerial government department , seal = , logo = HM Revenue & Customs.svg , logo_width = 190px , picture = , picture_width = , picture_caption = , formed = , preceding1 = Inland Revenue , preceding2 = HM Customs and ...
as self-employed for tax and National Insurance purposes. They are responsible for maintaining the business's records and submitting an annual Tax return for all income from self-employment and other work. In Britain, anyone who begins work for themselves is considered by the Government to be a self-employed sole trader, regardless of whether or not they have advised
HM Revenue and Customs , type = Non-ministerial government department , seal = , logo = HM Revenue & Customs.svg , logo_width = 190px , picture = , picture_width = , picture_caption = , formed = , preceding1 = Inland Revenue , preceding2 = HM Customs and ...
. A sole trader can keep all the profits of their business after tax has been paid. They must lodge a self-assessment tax return each year, and pay Income Tax as well as
National Insurance National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom Welfare is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social s ...
. If revenue is expected to be more than £85,000 a year, they must also register for the
Value Added Tax A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law L ...
. A sole trader can employ staff, but is personally responsible for any losses the business makes.


Advantages

Becoming a sole trader is relatively simple compared to other business structures. It can rapidly enable a business to begin trading; the requirements for record keeping are far more straightforward than other business structures. Sole traders make all operational decisions and are solely responsible for raising business finance. They can invest their own capital into the business, or may be able to access business loans and/or overdrafts. Unlike limited companies or partnerships, it is not necessary to share decision making or the profits.


Disadvantages

The simplicity of this structure also has its limitations. Unlike forming a limited company, it lacks a clear distinction between personal and business income from the perspective of the tax authorities. The business owner is personally liable for income tax and National Insurance contributions due for the business profits in each given tax year. They are also personally liable for any debts the business incurs. Business analysts may advise sole traders to form a limited company in order to access greater levels of financing, for example for expansion plans. This can limit their personal liability; business lenders may be more inclined to co-operate with a limited company. It can also be the case that within certain industries it is easier to secure work if presenting potential business partners with a limited company structure.


United States

In the United States, there are no formalities that must be followed to start a sole proprietorship or commence business as a sole proprietor. However, depending upon the business activity of the sole proprietorship, sole proprietors may require licenses and permits in order to conduct business. According to the
Small Business Administration The U.S. Small Business Administration (SBA) is a United States government The federal government of the United States (U.S. federal government or U.S. government) is the Federation#Federal governments, national government of the United ...
(SBA) a sole proprietor and their business are considered as one and the same; therefore, the business is not subjected to separate taxation and regarded as the direct income of the owner. Income, losses and expenses may be listed on a Schedule C, which is then transferred to the personal tax return of the owner. It is the responsibility of the owner to ensure all due income taxes and self-employment contributions are paid. A permitted exception to the sole proprietor (single owner) stipulation is made by the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service A revenue service, revenue agency or taxation authority is a government agency responsible for the intake of government revenue, including taxes and sometimes non-tax revenue. ...
(IRS) permitting the spouse of a sole proprietor to work for the business. They are not classified as partners in the enterprise, or an
independent contractor Employment is the relationship between two parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview; cropped away black border edge.jpg, 300px, ''Hip, Hip, Hurrah!'' ...
, enabling the business to retain its sole proprietorship status and not be required to submit a partnership income tax return. If an individual elects to incorporate as a
Limited liability company A limited liability company (LLC) is the US-specific form of a private limited company A private limited company is any type of business entity in Privately held company, "private" ownership used in many jurisdictions, in contrast to a Pu ...
but elects to be taxed as a
Corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

Corporation
, the IRS no longer recognizes the individual as a sole proprietorship.


Foundation and development

The setting-up process of a sole proprietorship to comply with local laws and regulations, is obtainable from the Small Business Development Center (SBDC), using their locator facility. A sole proprietor must be prepared to devote their time, utilizing business methods towards establishing a sound and appropriate foundation. Doing so may contribute to increased turnover, profits, minimize taxes, and avoid other potential adversities. Sole owners are engaged in many varieties of industry and commerce and a comprehensive list of the primary categories, is found in the
North American Industry Classification System The North American Industry Classification System or NAICS () is a classification of business establishments by type of economic activity (process of production). It is used by government and business in Canada Canada is a country in the n ...
(NAICS). The selection of a business type by a new sole proprietor is in many instances, motivated by appropriate business experience in a particular field, especially those pertaining to enterprises involving the marketing and selling of defined products and services. A crucial component of a sole proprietorship within a business plan is the provision of an inherent guideline, for actions that require implementing for a business to achieve growth. The business name and products are critical aspects in the founding of a sole proprietorship and once selected, should be protected. In the event of a determined brand name being legalized, information regarding trademark protection is available from the U.S. Patent and
Trademark A trademark (also written trade mark or trade-mark) is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also r ...

Trademark
Office.


Finances

For the sole proprietor there are a variety of options in obtaining financial support for their business, including loan facilities available from the U.S.
Small Business Administration The U.S. Small Business Administration (SBA) is a United States government The federal government of the United States (U.S. federal government or U.S. government) is the Federation#Federal governments, national government of the United ...
. The loans are not originated by the SBA, but the administration does guarantee loans made by various independent lending institutions. The primary loan facility for small businesses offered by this agency is the 7(a) loan program, designed for general applications. Sole proprietors are able to finance legitimate operating expenses; for example, working capital, furniture, leasehold improvements and building renovations. Many and varied private
organizations An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which has ...
and individuals seek opportunities to invest and fund a business that may not qualify for traditional financing from institutions, such as banks. For the sole proprietor, seeking to take advantage of this facility, there are various factors that must be understood and adhered to regarding the loan application. The
Small Business Administration The U.S. Small Business Administration (SBA) is a United States government The federal government of the United States (U.S. federal government or U.S. government) is the Federation#Federal governments, national government of the United ...
(SBA) advises there are traditionally two forms of financing:
debt Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to ...

debt
and
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the differe ...
. For any small business owner seeking funding, they must consider the debt-to-equity ratio of their enterprise. This means the inter-action between the sum of dollars borrowed and the financial dollars invested in the business. The mathematics are simple; greater the finance invested by sole proprietors in their business; easier the obtaining of finance! The SBA statistics show that the majority of small enterprises favor the use of limited equity financing; for example, friends and relatives. According to the SBA, there are various private organizations prepared to fund sole proprietor
business operations Business operations is the ''harvesting'' of value from assets owned by a business. Assets can be either ''tangible property, physical'' or ''intangible asset, intangible''. An example of value derived from a physical asset, like a building, is re ...
that do not qualify for traditional financing from banks. These
private investors An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. ...
can provide loans, credit lines, leasing facilities for equipment, or other forms of capital, to sole proprietorship that have exhausted alternative financial resources. It is also possible for these owners to obtain financing by way of business partners or others, with cash to invest. Financial partners are frequently “silent” and although they do not participate in any business related decisions, they generally receive a percentage of the profits, generated by the business. To assist sole proprietors, there are business grants available from the Federal Government or private organizations, providing certain criteria are met. To qualify for Federal grants, small businesses must comply with determined business size and income standards. For consideration regarding various grant opportunities, sole proprietors may apply for a grant in their capacity as an individual.
Local governments Local government is a generic term for the lowest tiers of public administration Public administration is the implementation of government policy Public policy is a course of action created and/or enacted, typically by a government ...
and state economic development agencies, frequently make
grants Grant or Grants may refer to: Places *Grant County (disambiguation)Grant County may refer to: Places ;Australia * County of Grant, Victoria ;United States *Grant County, Arkansas *Grant County, Indiana *Grant County, Kansas *Grant County, K ...
available, for businesses that stimulate their local economies. For any sole proprietor applying for a loan, before starting the loan procedure, it is essential their personal and business credit history is in order and up-to-date. A personal credit report should be obtained from a credit bureau; for example, Trans-Union,
Equifax Equifax Inc. is an American multinational consumer credit reporting agency A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the ...

Equifax
or
Experian Experian is an Irish multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, a sovere ...
. This action should be initiated by a business owner well before starting the borrowing process. The
Small Business Administration The U.S. Small Business Administration (SBA) is a United States government The federal government of the United States (U.S. federal government or U.S. government) is the Federation#Federal governments, national government of the United ...
specifies that all credit reports received from any source should be carefully reviewed to ensure that all relevant
personal information Personal data, also known as personal information or personally identifiable information (PII) is any information relating to an identifiable person. The abbreviation PII is widely accepted in the United States The United States of Amer ...

personal information
is correct. Other content in the report should also be examined particularly that related to the past credit obtained, from sources such as, credit cards,
mortgages A mortgage loan or simply mortgage () is a loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e., the borrower) incurs a ...
, student loans, as well as details pertaining to how the credit was repaid.


Other countries

An exact translation of "sole proprietorship" is unusual, because the focus of the concept can change. An example is the Brazilian concept of "sole business" that was split into two main kinds of : *sole professional: with higher level academic certificate and regulations for formal control of autonomous exercise (ex. sole doctor's office). *sole entrepreneur: typical "little entrepreneurs", as sole craftsman, autonomous taxi driver, and many others, that can be formal. An
informal Formal, formality, informal or informality imply the complying with, or not complying with, some set theory, set of requirements (substantial form, forms, in Ancient Greek). They may refer to: Dress code and events * Formal wear, attire for forma ...
freelancer, through a simple process, can be formalized as ''sole microentrepreneur''
German German(s) may refer to: Common uses * of or related to Germany * Germans, Germanic ethnic group, citizens of Germany or people of German ancestry * For citizens of Germany, see also German nationality law * German language The German la ...
and
Austrian Austrian may refer to: * Austrians, someone from Austria or of Austrian descent ** Someone who is considered an Austrian citizen, see Austrian nationality law * Something associated with the country Austria, for example: ** Austria-Hungary ** Austr ...
tax laws also differentiate between sole professionals and other sole proprietors.


References

{{Authority control Business terms Business law Types of business entity