Sole Proprietorship Meaning: it is an unincorporated business owned by a single trader. Unincorporated business means there is no legal separation between business and owners. In this guide, we look at example of sole proprietorship, characteristics and funding.
Unlike corporations and partnerships, a sole proprietor has unlimited liability. There is no separation of the business from the owner. It means the owner is liable for any liabilities incurred by the business. If someone sues a sole proprietorship business, they essentially sue the sole proprietor.
Characteristics of Sole Proprietorship
1. One-person ownership
A sole proprietorship is formed and owned by a single person. They source their capital from their savings or borrowing, either from banks or friends and family.
2. One-person control
As said above, a sole proprietorship is formed and owned by a single person. This sole trader makes every decision on how to operate the sole proprietorship in question. The sole owner may employ people in the business, but the owner will ultimately decide.
3. Small size
Most sole proprietorships are small businesses. Its because capital used to start these businesses is either from savings or borrowed funds. The operations of the business are also limited.
4. No separate business entity
The sole proprietorship has no legal entity that is separate from the owner. The owner and the business are one, and there is no difference between the two. If, for instance, the business owner dies or becomes sick, then the business dies with him. There is, therefore, no separation between ownership and management.
5. Unlimited liability
The owner is entirely liable for all the business’s debts by unlimited liability. So in the case, the business is caught up in debts that it cannot pay, it will be attached to the owner, who will be forced to clear the said debts.
6. All profits or losses go to the proprietor
Since only one person is forming the business, paying up the debts attached to the business, and making decisions, he is entitled to all the profits made by the business. The same happens when the business encounters losses. The owner is solely liable for all the losses of the business.
7. No formalities
No legal formalities are needed to start or exit a sole proprietorship. It makes it easier to start a business compared to partnerships and corporations.
Example of Sole Proprietorship
1. Grocery store
The local grocery store business offers products that will be readily available to the community. The community may not necessarily be significant, but the local store will be able to sell enough needed by the consumers.
2. A bookkeeping business
A bookkeeping business is a kind of business that takes care of other businesses’ financial needs. This work is done by a bookkeeper who maintains accounting books and deals with tax returns. The bookkeeper is the sole proprietor.
3. Freelance writer
This kind of business where the writer operates as an independent contractor. The freelance writer provides articles to businesses, the press, or general people.
4. Financial planner
A financial planner gives financial advice to businesses and individuals. They advise on savings, investments, retirement plans, and expenses.
5. Virtual Assistant
A virtual assistant provides administrative duties via the internet in virtual assistance businesses. These tasks include data entry, appointment setting, flight and hotel booking, and other assistant duties.
6. House cleaning business
House cleaning businesses offer various services such as carpet cleaning, laundry, or house cleaning. They require a small amount of money to start and run.
7. Video Editor
The skills of editing video are growing in demand. This is due to the high consumption of long and short video content. A video editor sole proprietor can use tools like VideoStudio to edit professional videos for themselves and their clients.
8. Attorney
You can also be an Attorney sole proprietor. Here, your clients would employ you for attorney services to represent them in government or private legal matters. If you practice law as a sole proprietor attorney, you should be aware of unlimited liability in your business.
9. Content Creator
We live in a world where people create premium content that they can monetize. Online courses are an excellent example of this. You can create online courses and sell them directly to learners. They can buy these courses on regular subscriptions or a one-time purchase basis.
10. Hairdresser
Hairdresser sole proprietors can scale up their salons and even employ a couple of professional hairdressers. You can even become a successful hairdresser and establish several salons you manage as a sole proprietor. This can be a profitable business model considering the high demand for salon services now by both men and women.
11. Electrician
Local electricians are highly sort after in different places of the world. Due to sensitivity related to electricity matters, people prefer to get skilled and knowledgeable electricians to manage and install electrical equipment. As a sole technician, you can create a brand name through high-quality customer service.
12. Digital Marketer
You can hone your digital marketing skills to establish a sole proprietorship out of your expertise. Here, you would level up your services, and instead of being hired by a single firm, you would act as an agency. Here, you would be helping your clients to market their products or services in their different social media assets.
13. Plumber
Drainage systems and water piping must be one of the most sensitive areas of human livelihood. As a plumber, you could be hired by small-scale to large-scale clients for your services. For large job orders and contracts, you can employ someone to help you.
With plumbing skills, your work is diversified beyond your imaging. You could be hired to install pipes and design drainage systems. This would be in both commercial and residential properties. With the right connection and customer service, you have the potential to establish a long-term profitable business.
14. Tour guide
Think about your country, city, or any other local area. What attracts visitors from within your country and foreigners?
You can start a profitable sole proprietorship as a tour guide in local tourist attraction sites. Since you know about such places, you can help your tourists get the most enjoyable experience.
15. Taxi Driver
When was the last taxi you used, and how often do you use one? I bet you do not want to be driven around by a less qualified taxi driver. You and I also want to be chauffeured by someone we can trust.
Now assume you are that trustworthy taxi driver. Your customers could refer others for your services because of responsible driving and honesty. This is a sector you can highly leverage on referral customers.
16. Web developer
Demand for web development services will keep increasing as more small and medium-sized businesses establish an online presence. As a skilled web developer, you can become a successful sole proprietor.
You can build intuitive and fast websites for your clients to meet their needs. Surprisingly, your client would use you to maintain such web assets for as long as necessary. Some are likely to demand auxiliary services like SEO. This would build up your portfolio as a web developer sole proprietor.
17. Transcriber
There is so much information in video and audio files. In some cases, this information is demanded in text form. Creating a written version of videos and audio is a paying career for transcribers.
You can also excel in this field by honing your listing and grammar skills. You can connect with clients directly or indirectly on different freelancing sites.
18. Photographer
Preserving memories of the experience with loved ones is best possible through pictures and videos. People are used to connecting with family members and creating new friends online. Pictures play a major role in identity, both for individuals and corporates.
As a photographer, you can establish a studio where clients come for your services. You could also take your services to your clients wherever they wish. In the modern digitalized business world, you can take photographs on demand and sell them online to worldwide buyers.
19. Street Food Vendor
The contribution to food security provided by street food vendors is immense. They avail fresh and affordable food to everyone. Furthermore, some street food vendors carry a culture passed to them by other generations.
As a street food vendor, you can play a part in maintaining people’s culture in your locality. You could also be helping to ensure sustainable food security even at your micro-scale.
20. AgroVet
Farmers, pet owners and veterinary themselves buy much from AgroVets. You can start your AgroVet where people have pets or practice farming. Pet owners and farmers can support you immensely if you supply high-quality products. Within a few years, you could have doubled, if not tripled inventory.
21. Landscaper
22. Mechanic
23. Barber
24. Personal trainer
25. Blogger
26. Architect
27. Bakery owner
28. Cell phone repair technician
29. Computer repair technician
30. Data analyst
What are Sources of Finance for Sole Proprietorship?
Finding the money to start the business and buy the equipment necessary for a sole proprietor can prove challenging. However, sole proprietors have several options to raise money.[1]
1. Personal savings
Personal savings are the primary source of capital for small businesses. It may be the only available source of capital since there are no profits available.
2. Borrowed funds from family and friends
One can also decide to borrow funds from friends and family. Once you prove who can trust you to start a business and manage money well, friends and family will not mind providing money for the business.
3. Earned profits
Existing businesses use retained profits to run the day-to-day activities of a business. The retained profits could invest in new equipment to help the business grow.
4. Loans from financial institutions
A sole proprietor can also get funding from loans from banks. A business owner can apply for a loan from a bank against personal assets.
5. Sale of personal assets
Another source of funding is the sale of personal assets. An individual can sell assets that he no longer requires to get money to start a business.
Circumstances of Dissolution of Sole Proprietorship
A sole proprietor’s business can be dissolved in many ways, as explained below:
1. When the owner becomes bankrupt – No activity would be going on, forcing the business to close down.
2. In case of death of the owner – If the owner dies, then no one will be available to continue the business, and it shuts down and dies with the owner.
3. Where there is the completion of the intended purpose – If the sole trader started the sole proprietorship business for a certain reason and the reason has been attained, they dissolve the business.
4. In case of a court order – The court sometimes orders some sole proprietorships to be closed if they are illegal or for other reasons.
Surprisingly, some of the large firms that exist started as sole proprietorships, which then grew to their huge sizes.
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- Limited Liability Company Definition, Formation and Types
- Partnership Definition, Types, Formation and Features
- Perfect Competition Definition, Example and Characteristics
- Monopoly Definition, Example and Types
References:
1. Ndala, N. N., & Moto, F. (2019). Assessing the access to finance by small and medium-sized enterprises from financial institutions in Blantyre City-Malawi. International Journal of Business and Management, 14(5).
