Sole proprietorship

A sole proprietorship also known as a sole trader, or simply proprietorship is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner (subject to taxation specific to the business). All assets of the business are owned by the proprietor and all debts of the business are the proprietors'. This means that the owner has no lesser liability than if he was acting as individual instead of a business. It is a "sole" proprietorship in contrast with (partnerships.

A sole proprietor may do business with a trade name other than his or her legal name. Sometimes a sole proprietor is required to file a doing business as statement with a local government even if it is the same as his actual name for certain types of businesses or as a requirement to open a business banking account.

Advantages

The many advantages of Corporations are described in that article; chiefly they are the ability to raise capital either publicly and privately, to limit the personal liability of the officers and managers, and to limit risk to investors.

The disadvantages of corporations are advantages to proprietorships: reduced cost of doing business, as corporations must do many things like purchasing, accounting, and legal actions in more expensive ways and are subject to special taxes and fees; easier and cheaper to start and discontinue without required fees and legal expenses; and easier management, particularly when a sole owner wishes to have exclusive control, as most corporations are required to be controlled by a board of several persons.

Although theoretically investor income earned by corporations is subject to double taxation, in practice many corporations pay little tax, and entities like S Corporation or LLC (in many of the United States) and Limited Company elsewhere pass thru profits and losses to their investors. The tax advantage is such cases is then lower payroll and accounting costs of the proprietorship.

Lending

"Holding everything else constant, ... small corporations are less creditworthy than small noncorporate firms, because the former have only the corporation’s assets to back up business debt, while the latter have both the firm’s assets and the owner’s personal assets. Lenders also know that owners of small corporations can easily shift assets between their personal accounts and their corporations’ accounts, so that lenders may not view the corporate/noncorporate distinction as meaningful for small firms. In making loans to small corporations, lenders therefore may require that owners personally guarantee the loans. This abolishes the legal distinction between corporations and their owners for purposes of the particular loan and puts the owner’s personal assets at risk to repay the loan.

Disadvantages

Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his investment and the investment is more difficult to formalize; other types of business entities have more documentation.

As a business becomes successful, the risks accompanying the business tend to grow. The primary disadvantage of a proprietorship is that the owner and all his personal assets are responsible for all of the liabilities of the business. This is particularly true for wrongdoing or liabilities created by employees; a corporation only partially shields an owner or officer for his own actions according to the principle of piercing_the_corporate_veil. Certain business structures such as Limited Liability Company allow shielding of personal assets, and sometimes, favorable tax treatment, but there are disadvantages and limitations also.