A sole proprietorship, also known as the sole trader or simply a
proprietorship, is a type of enterprise that is owned and run by one
natural person and in which there is no legal distinction between the
owner and the business entity. The owner is in direct control of all
elements and is legally accountable for the finances of such business
and this may include debts, loans, loss, etc.
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 partnerships (which have at least two
A sole proprietor may use a trade name or business name other than
his, her, 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.
1 Advantages and disadvantages
2 Foundation and development
3.1 United States
4 Rules for sole proprietorships in different countries
4.1.1 Registration of Sole Proprietorships
4.1.2 Goods and Services Tax (GST)
4.1.3 Sole Proprietors as Employers
4.1.4 Online Businesses
4.2 United Kingdom
4.3 United States
4.4 Other countries
6 External links
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, who will determine
that the name submitted is not duplicated by another business entity.
Furthermore, the business owner must complete a form submitted to the
governing authority to acquire title as a “DBA” or "doing business
as”. The authority in some states is the Secretary of State.
The license for a sole proprietary business entitles the owner to hire
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
process, their contribution to the project or decision is considered a
recommendation under the law. Under the legal doctrine Respondeat
superior (Latin: "let the master answer"), the legal liability 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 and/or losses suffered by the business, to the extent of
using personal or other assets, to discharge any outstanding
liabilities. 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 general business law is that this type of
business ownership does not embody a “legal entity” Furthermore,
any attempted and unreliable distinctions of the business do not
change the classification under this title.
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 (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
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 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 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
Small Business Administration
Small Business Administration (SBA) advises there are
traditionally two forms of financing: debt and equity. 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
According to the SBA, there are various private organizations prepared
to fund sole proprietor business operations that do not qualify for
traditional financing from banks. These private investors 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 and state economic development agencies, frequently make
grants 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,
Experian. This action should be initiated by a business owner well
before starting the borrowing process.
Small Business Administration
Small Business Administration specifies that all credit reports
received from any source should be carefully reviewed to ensure that
all relevant 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,
student loans, as well as details pertaining to how the credit was
Rules for sole proprietorships in different countries
Registration of Sole Proprietorships
In Malaysia, there are three different laws governing the registration
and administration of sole proprietors:-
West Malaysia & the Federal Territory of Labuan: Registration of
Business Act 1956 (Act 197);
Sarawak: Businesses, Professions and Trade Licensing Ordinance
Sarawak Chapter 33] & Business Names Ordinance for the State
Sarawak Chapter 64]; and
Sabah: Trades Licensing Ordinance for the State of
In West Malaysia, the registration of sole proprietors come under the
purview of the
Companies Commission of Malaysia (Suruhanjaya Syarikat
Malaysia, or abbreviated as SSM). In
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, 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 (30) 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
(30) days before its expiry.
In the event of termination of business, the proprietor has thirty
(30) 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 (4) 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;
Pay contribution to their employees' Social Security.
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 12th, 2017,
a total of 50,882 online businesses have registered with the SSM since
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
HM Revenue and Customs as
self-employed for tax and
National Insurance purposes. They are
responsible for maintaining the businesses records and submitting an
annual Tax return for all income from self-employment and other
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. 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. If revenue is expected to be more than
£83,000 a year, they must also register for the Value Added Tax. 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
The simplicity of this structure also has its limitations. Unlike
forming a limited company, it lacks the clear cut definition 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.
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
Small Business Administration (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
Internal Revenue Service (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, enabling the business to retain its sole proprietorship
status and not be required to submit a partnership income tax
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 formal
sole professional: with higher level academic certificate and
regulations for formal control of autonomous exercise (ex. sole
sole entrepreneur: typical "little entrepreneurs", as sole craftsman,
autonomous taxi driver, and many others, that can be formal. An
informal freelancer, through a simple process, can be formalized as
German and Austrian tax law also differentiates between sole
professionals and other sole proprietors
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