There are several forms of business organizations such as sole proprietorship operated by a single person, partnerships that collect people of like mind to pursue an undertaking to get profits, incorporated organizations such as public limited companies and private limited as well as unlimited companies that are legally a separate entity from the owners and finally multinational companies that have a regional presence in more than one country. As noted by Wright (1), the sole proprietorship business is the easiest form of business to open and operate. The person who runs the sole proprietorship is referred to as the sole proprietor Wright (1). A sole proprietor runs the business alone probably with some assistance from the employees, but being a sole proprietorship business calls for the proprietor to be the lead decision-maker. Although sole proprietorship may have some limitations especially as far as funding is concerned, it remains the easiest form of business to open.
As noted by Wright (1) sole proprietorship business is operated by one person hence the name sole. The sole proprietor is tasked with the responsibility of raising the capital of the business. It is also the responsibility of a sole proprietor to run the business, especially where the decision-making process is involved. The sole proprietor also is tasked with the responsibility of taking care of all the transactions that the business engages in. The entity is not separate from its owner as far as debts are concerned and thus the debts of the business are considered the debts of the trader. A sole trader, therefore, is forced to take care of all the transactions of the business as the business and the trader is viewed as the same entity.
A sole proprietorship is also an unincorporated entity that may choose to trade in a specific business name or the name of the sole owner. A business that is incorporated ceases to be a sole proprietorship even where one person takes the dominant shareholding capacity.
There are several advantages that one gets from operating a sole proprietorship form of business. The first advantage is that a sole proprietorship is always easy to open and operate (No Name 1). There are no many bureaucracies and red tapes that are involved in the process of setting up a sole proprietorship form of business. The sole trader raises the capital and starts the business without necessarily consulting anyone. A sole proprietorship also has easy decision making process. Since the sole trader is the sole decision maker, decisions are made quickly hence making it easy to run a sole proprietorship. Another advantage of sole proprietorship is that profits are not shared (No Name 1). The sole trader enjoys all the benefits that he or she derives from the business. Due to the individual attention that the sole trader gives to his clients, most sole traders create excellent customer service especially due to the direct contact with customers. Sole proprietorship also helps one to avoid cases of double taxation. Since a person and the company are considered the same person, the enterprise run as a sole proprietor pays its taxes through its owner as personal taxes. Any losses incurred by the business also lessen the tax burden of the sole traders.
However, sole proprietorship form of business has various disadvantages. To begin with, the business may not be able to raise finances for expansion due to limited resources. Sole proprietors cannot float there shares in stock market to raise additional capital and thus may have little ability to expand to other markets. Sole proprietorship businesses also are unlimited in nature and thus the debts of the business are taken to be the debts of the businessman. The business is not a legal entity in the face of the law and thus the businessperson assets can be soled to cover for debts of the business should the business be unable to cater for its debts. Sole proprietorships also are disadvantaged by the fact that they lack perpetual succession (Ward 1). Since the business is not separate from the owner, most sole proprietorship ceases operating with the death or incapacitation of the sole trader. Sole proprietorship business may also increase the tax burden of a person as the income of the business is considered personal income. The tax burden of the sole trader may also increase as he is not allowed to claim for medical or health insurance related charges (Thomas 1).
In conclusion, it is evident that sole proprietorship is the easiest form of business to start. From the low capital required to start the business to the legal charges that are needed to operate this form of business, a sole trader has the ability to run the business with ease. However, it has various limitations due to the nature of its formation. The business may add the tax burden of the trader while at the same time it may lead to private property of the trader being sold to recover business debts (Wright 1). Despite the disadvantages, sole proprietorships are the easiest forms of business to start as well as to run.
No Name. How to own a business: 2010.
Thomas Jones. Doing Business a sole proprietor. 2010. Poznak law firm Ltd. Web.
Ward Susan. Choosing a from of business ownership.2010. About.com.
Wright Kevin. Forms of business ownership. HarperCollins: New York, 2009. Online.