A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business. Sole Proprietorship the oldest form of business organisation in which a business is owned and operated by one individual. This type of business was largely prevalent in ancient Egypt, Italy and Grace. The form widely prevails in business throughout the world including Bangladesh.
In the sole proprietorship, known alternatively as sole tradership, the proprietor is to take all risks. Some of the favourable characteristics of a sole proprietorship business that it is easy to start, its cost of starting is low, its enjoy full freedom in taking risk decision, has right to control, easy to wind up, has minimum legal restriction and the like. Because of the structure of the ownership, the owner pays no taxes other than the income tax. There is no definite legal procedure for sole tradership to be complied with. These features make sole proprietorship a common and popular form of business organisation. The most important advantage of sole tradership is, however, is its scale allowing anybody willing to start a business easily with the least amount of capital.
The sole trader bears unlimited liability and in case of insolvency, the creditors may take all the assets of the business that is in default and any other business owned by the proprietor, including his private home and possessions with certain exceptions as set forth in the bankruptcy law. A sole trader is to sustain all business losses if occurs. Similarly, he does not have to share the profits with others.
Although anyone possessing a legal entity can start a sole proprietorship business, he can not trade in illegal or prohibited goods or services. A sole tradership business has no legal identity other than that of its owner. But, the sole trader is not restricted to shifting from one activity to another or enlarging his activities as a corporation. He can make contracts and hold assets in his own name.
The sole traders accumulate capital and finance operating costs from their own resources and savings, loans from friends, relatives, neighbours, local moneylenders, co-operative societies and micro-finance agencies such as ngos, grameen bank, and special business financing schemes.
Almost 85% businesses in Bangladesh are operated as sole tradership. A relatively large investment business conducted by sole proprietors in the country is that in the real estate sector. Most sole proprietors conduct small businesses such as retail shops that sell stationary, groceries, cloth, medicines, handicrafts, books, confectioneries, spare parts, and tyre/tube, wholesale stores. Many operate amusement business, and service marketing such as hotels, restaurants, guesthouses or tailoring, hairdressing, road, and water transportation. Sole traderships in Bangladesh are usually classified as small, medium and large depending on the size of capital employed. The capital range, however is only relative: a small sole trader has a capital of less than Tk 100,000, a medium one between Tk 100,000 and 500,000 and a large above Tk 500,000. Sole traders are the most exclusive group of businessmen in the rural areas and in almost all the district towns.
About Business Ownership Structures on Sole Proprietorship:
Before you can decide how you want to structure your business, you'll need to know what your options are. Here's a brief rundown on the most common ways to organize a business:
1. Sole proprietorship
3. Limited partnership
4. Limited liability company (LLC)
5. Corporation (for-profit)
6. Nonprofit corporation (not-for-profit), and
Sole Proprietorships and Partnerships:
For many new businesses, the best initial ownership structure is either a sole proprietorship or -- if more than one owner is involved -- a partnership.
A sole proprietorship is a one-person business that is not registered with the state like a limited liability company (LLC) or corporation. You don't have to do anything special or file any papers to set up a sole proprietorship -- you create one just by going into business for yourself.
Legally, a sole proprietorship is inseparable from its owner -- the business and the owner are one and the same. This means the owner of the business reports business income and losses on his or her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments.
Similarly, a partnership is simply a business owned by two or more people that hasn't filed papers to become a corporation or a limited liability company (LLC). You don't have to file any paperwork to form a partnership -- the arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership's owners pay taxes on their shares of the business income on their personal tax returns and they are each personally liable for the entire amount of any business debts and claims.
Sole proprietorships and partnerships make sense in a business where personal liability isn't a big worry -- for example, a small service business in which you are unlikely to be sued and for which you won't be borrowing much money for inventory or other costs. To learn more about starting and running a sole proprietorship or partnership, read Nolo's articles on each topic.
Limited partnerships are costly and complicated to set up and run, and are not recommended for the average small business owner. Limited partnerships are usually created by one person or company (the "general partner"), who will solicit investments from others (the "limited partners").
The general partner controls the limited partnership's day-to-day operations and is personally liable for business debts (unless the general partner is a corporation or an LLC). Limited partners have minimal control over daily business decisions or operations and, in return, they are not personally liable for business debts or claims. Consult a limited partnership expert if you're interested in creating this type of business.
Corporations and LLCs:
Forming and operating an LLC or a corporation is a bit more complicated and costly, but well worth the trouble for some small businesses. The main benefit of an LLC or a corporation is that these structures limit the owners' personal liability for business debts and court judgments against the business.
What sets the corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don't use their personal tax returns to pay tax on corporate profits -- the corporation itself pays these taxes. Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, and the like.
Like corporations, LLCs provide limited personal liability for business debts and claims. But when it comes to taxes, LLCs are more like partnerships: the owners of an LLC pay taxes on their shares of the business income on their personal tax returns.
Corporations and LLCs make sense for business owners who either (1) run a risk of being sued by customers or of piling up a lot of business debts, or (2) have substantial personal assets they want to protect from business creditors. To learn more about forming an LLC or a corporation, see Nolo's articles on each topic.
A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by soliciting public and private grant money and donations from individuals and companies. The federal and state governments do not generally tax nonprofit corporations on money they take in that is related to their nonprofit purpose, because of the benefits they contribute to society. To learn more about nonprofit corporations, see Nonprofit Basics.
Some people dream of forming a business of true equals -- an organization owned and operated democratically by its members. These grassroots business organizers often refer to their businesses as a "group," "collective," or "co-op" -- but these are often informal rather than legal labels. For example, a consumer co-op could be formed to run a food store, a bookstore, or any other retail business. Or a workers' co-op could be created to manufacture and sell arts and crafts. Most states do have specific laws dealing with the set-up of cooperatives, and in some states you can file paperwork with the secretary of state's office to have your cooperative formally recognized by the state. Check with your secretary of state's office for more information.