Sole Proprietorship

(redirected from Sole traders)
Also found in: Financial.

Sole Proprietorship

A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation.

A person who does business for himself is engaged in the operation of a sole proprietorship. Anyone who does business without formally creating a business organization is a sole proprietor. Many small businesses operate as sole proprietorships. Professionals, consultants, and other service businesses that require minimum amounts of capital often operate this way.

A sole proprietorship is not a separate legal entity, like a partnership or a corporation. No legal formalities are necessary to create a sole proprietorship, other than appropriate licensing to conduct business and registration of a business name if it differs from that of the sole proprietor. Because a sole proprietorship is not a separate legal entity, it is not itself a taxable entity. The sole proprietor must report income and expenses from the business on Schedule C of her or his personal federal income tax return.

A major concern for persons organizing a business enterprise is limiting the extent to which their personal assets, unrelated to the business itself, are subject to claims of business creditors. A sole proprietorship gives the least protection because the personal liability of the sole proprietor is generally unlimited. Both the business assets and the personal assets of the sole proprietor are subject to claims of the sole proprietorship's creditors. In addition, existing liabilities of the sole proprietor will not be extinguished upon the dissolution or sale of the sole proprietorship.

Unlike the managers of a corporation or a partnership, a sole proprietor has total flexibility in managing and controlling the business. The organizational expenses and level of formality in a sole proprietorship are minimal as compared with those of other business organizations. However, because a sole proprietorship is not a separate legal entity, it terminates when the sole proprietor becomes disabled, retires, or dies. As a result, a sole proprietorship lacks business continuity and does not have a perpetual existence as does a corporation.

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. During her lifetime, a sole proprietor can sell or give away any asset because the business is not legally separate from the sole proprietor. At the death of the sole proprietor, the business is usually dissolved. The proprietor's estate, however, can sell the assets or continue the business.

Cross-references

S Corporation.

sole proprietorship

n. a business owned by one person, as distinguished from a partnership or corporation.

References in periodicals archive ?
The challenger bank is particularly focused on sole traders, freelancers and contractors to provide them with a mobile-first financial services platform.
The increase over the latest year was driven by a rise in the number of unregistered businesses, the smallest sole traders and partnerships that are not registered for VAT/PAYE.
The exact donated amount of foundations, companies, individuals and sole traders is BGN 96 137 349, down 11% from 2015 or almost 12 million less.
CVS, which uncovered the figures on prison sentences through a Freedom of Information request to the Ministry of Justice, said sole traders and self-employed business owners are most at risk of a "disproportionate financial and legal burden" from falling behind with debt payments.
For mortgage purposes you are classed as self-employed if you own 25 per cent of a business or more, meaning that sole traders, partners within a partnership and limited company directors will typically fall into this category.
In a joint statement, the pair said: "We are delighted that one of the most senior church leaders in our country has joined forces with our initiative representing sole traders, small, medium and large businesses and leaders in the North-east.
We understand the market; we understand what's required, and we deal with everyone from sole traders and blue chip companies on a daily basis.
TRADERS 'PS208 A MONTH OUT OF POCKET' SOLE traders are left chasing up PS208 on average each month due to customers not having cash to hand to settle their bills, research has found.
PT Essentials allows those sole traders to kick-start their business without fear.
The Department of Business, Innovation and Skills says as many as two million sole traders and small companies have missed out on PS1.
Sole traders report the best work/life balance, with 55 percent satisfied and 24 percent dissatisfied.
The report found 36 per cent of female sole traders and women running micro-businesses felt pressured to stay connected to technology all the time for fear of missing out on new opportunities or requests, compared to 26 per cent of men.