A Quick Guide
A sole proprietorship is a popular choice for entrepreneurs seeking complete control over their business. It’s the most straightforward business structure, allowing you to make all decisions and enjoy all the rewards almost instantly, but it also means shouldering all the risks.
This structure means you and your business are legally one entity, with no separate legal status, no board of directors, and no one else to share the profits or headaches. You handle everything from business decisions to covering any debts, making it a common choice for freelancers, consultants, small shop owners, and those who prefer a streamlined approach.
The key advantages of a sole proprietorship include full control, easy setup, straightforward taxes and keeping all profits. You make every decision and can pivot quickly without needing approvals of lengthy meetings, offering autonomy. Setting up a sole prop is simple with minimal paperwork and no incorporation fees required. it is advisable for freelancers who value their independence and the self-employed individual.
However, this structure comes with significant drawbacks, primarily unlimited liability. Since there is no legal separation between you and your business, you are personally responsible for all liabilities. If the business faces financial troubles, your personal assets could also be exposed to risk. Hence a lot of entrepreneurs eventually convert to more formal structures such as a private company.
Funding can also be more challenging as this trading vehicle is not generally favoured by investors or lenders of credit. Another disadvantage is the lack of continuity/going concern. In the case where there is inadequate succession planning, should you pass away, that could be the end of your business and legacy.
In conclusion, while a sole proprietorship offers flexibility and ease initially, you may need to reconsider should the goal/vision of the business change and as you contemplate the growth and success of your business. However like other entity types, you still need to address your taxes and financial reporting. This brief summary may be of assistance:
Registration and secretarial requirements: None; it is run by one person.
Taxes: Register as a provisional taxpayer and submit your tax returns as such. In the case where you are also an employer or meet the requirements of a VAT vendor, please register for these tax types as well.
Financial reporting: You can make use of systems like Bloo Money to manage your finances. Thereafter compile your financials for submissions and reporting.
MAS is also excited to assist you delve deeper into this trading type, please do contact us on any of our communication options. We look forward to serving you 🙂
