What is a Proprietor?
Definition: A proprietor is a person who creates and runs a business intending to make consistent profit from the business activities of that business. That is why such a business is usually described as a sole proprietorship.
A sole proprietorship can thus be described as a single, unincorporated business operation that is owned by a single person. This is the easiest and most basic type of business that one can start. One of the key characteristics of a sole proprietorship is that the business and the owner are considered one, thus there is no separation between the two. This means that the business does not exist without the owner.
The lack of legal separation between the owner and the business means that the sole proprietorship business model is a double-edged sword for the proprietor. This is because the proprietor enjoys all the rewards or profits generated by the business but he also suffers all the risks associated with operating the sole proprietorship. For example, if the business is sued and is forced to pay some fines, then it is the business owner or proprietor who will have to pay those fines. Any liabilities or debts that the business owes are thus the responsibility of the proprietor.
Sole Proprietorship Pros & Cons
There are many advantages and disadvantages of being a sole proprietor. Here are some of the main ones.
Pros
- The proprietor owns 100 percent of the business which means that they are in charge of the decision-making process. They can thus run the business as they see fit and since they answer to nobody, there is no bureaucracy in making decisions regarding business operations or the future of the business.
- You get to be your own boss, and so get to set your own work schedule based on customer needs. In other words, you work on your own terms and you can customize your business environment to suit your needs.
- Operating a sole proprietorship is relatively easier compared to other forms of business and the profits made by the business are yours.
- The simple structure of operations also carries over to the taxation process. Since the business and the owner are inseparable, then the owner can pay tax through their personal tax form.
- The proprietor can deduct business losses from other types of incomes and this can be carried backward or forward. This makes it easier for anyone aspiring to transition from a 9-to-5 to a sole proprietorship type of operation.
Cons
- Since the owner bears all the liabilities of the sole proprietorship, then exposure to liability is a major disadvantage because the sole proprietor will have to bear that liability.
- The fact that there is no legal separation between the proprietor and the sole proprietorship means that the proprietor may lose his personal property to pay off business liabilities. Any debt that the business incurs as a result of the sole proprietorship’s failure can be paid off by selling personal assets.
- A sole proprietor may find it hard to secure contracts especially from consulting groups or the government because they tend to shy off from doing business with unincorporated businesses. This is why independent contractors prefer to form companies if they wish to work with the government or other companies and organizations.
- Unlike other business types such as incorporated companies that can raise capital by selling shares and attracting venture capitalists, raising capital for a sole proprietorship might not be as easy.
- Since the proprietor and the sole proprietorship are one, selling the business might be difficult especially when it comes to business valuation.
Summary
A proprietor ventures into a sole proprietorship because it is an easy approach to having a source of income. Despite their humble beginnings, sole proprietorships can evolve into highly successful businesses provided that the proprietor focuses on growth and a clear vision of the business venture’s future. It is particularly ideal for anyone passionate about a specific type of business.