Term of the Day - 14 February 2024

Today’s Term is “Sole Proprietorship”.

A sole proprietorship is a form of business organisation where an individual, known as the sole proprietor, owns and operates the entire business. It is the simplest and most common type of business structure, characterized by its ease of formation and the direct involvement of the owner in day-to-day operations.

Key features of a sole proprietorship include:

1. Ownership: The business is owned by a single individual, making all decisions and retaining full control over the business.

2. Liability: The owner has unlimited personal liability for the business's debts and obligations. Personal assets may be at risk to cover business liabilities.

3. Profit and Loss: The sole proprietor receives all profits and is personally responsible for any losses incurred by the business.

4. Taxation: Business income is reported on the owner's personal tax return, simplifying the tax process. The business itself is not taxed separately.

5. Continuity: The business's continuity is directly tied to the owner. It may be challenging to transfer ownership, and the business often ceases to exist upon the owner's death or decision to close.

Common examples of sole proprietorships include small retail shops, freelancers, consultants, and service providers. While this structure offers simplicity and flexibility, it also poses challenges such as limited access to capital and potential difficulties in business continuity.