sole proprietorship


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 . 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 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 s (which have at least two owners). A sole proprietor may use a 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 , who will determine that the name submitted is not duplicated by another . Furthermore, the business owner must complete a form submitted to the governing authority to acquire title as a “DBA” or "”. The authority in some US states is the Secretary of State. The license for a sole proprietary business entitles the owner to hire and enlist the services of . Although an employee or consultant may be requested by the owner to complete a specific project or participate in the company's process, their contribution to the project or decision is considered a ''recommendation'' under the law. Under the ''Respondeat superior'' (: "let the master answer"), the for any business decision arising from such a contribution remains upon the owner and cannot be renounced or . This is transposed by the unlimited liability attached to a sole proprietary business. The owner carries the financial responsibility for all and/or losses suffered by the business, to the extent of using personal or other assets to discharge any outstanding . 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 “” Furthermore, any attempted and unreliable distinctions of the business do not change the classification under this title.

Rules for sole proprietorships in different countries


In the , a sole trader is called a "ZZPer". Any sole trader needs to register with the and get a VAT ID.


In , a sole trader who wishes to use a business name must register that name with the (CRO).


Registration of sole proprietorships

In , there are three different laws governing the registration and administration of sole proprietors:- # West Malaysia and the Federal Territory of : Registration of Business Act 1956 (Act 197); # : Businesses, Professions and Trade Licensing Ordinance arawak Chapter 33 & Business Names Ordinance for the State of Sarawak arawak Chapter 64and # : Trades Licensing Ordinance for the State of Sabah [Sabah Chapter 144]. In West Malaysia, the registration of sole proprietors come under the purview of the (''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 , 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 must notify the that they are trading and must register for 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 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 . 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 . If revenue is expected to be more than £85,000 a year, they must also register for the . A sole trader can employ staff, but is personally responsible for any losses the business makes.


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.


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 .

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 (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 (IRS) permitting the spouse of a sole proprietor to work for the business. They are not classified as partners in the enterprise, or an , 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 but elects to be taxed as a , 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 (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 Office.


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. . 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 and individuals seek opportunities to invest and fund a business that may not qualify for 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 . The (SBA) advises there are traditionally two forms of financing: and . For any seeking funding, they must consider the 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 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 that do not qualify for traditional financing from banks. These 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 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. and state economic development agencies, frequently make available, for businesses that stimulate their . 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, or . This action should be initiated by a business owner well before starting the borrowing process. The specifies that all credit reports received from any source should be carefully reviewed to ensure that all relevant 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, , 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 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 freelancer, through a simple process, can be formalized as ''sole microentrepreneur'' and tax laws also differentiate between sole professionals and other sole proprietors.


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