A sole proprietorship is a popular form of business structure for entrepreneurs and small business owners all over the world.
According to the World Bank, the number of proprietors in Pakistan was reported at 56.74 % in 2020.
Not just Pakistan, but the US and other parts of the world have seen an increase in proprietors due to the many advantage of sole proprietorship.
As of February 2022, proprietors make up over 11% of the 157 million working Americans.
In this article, we will lay down a foundation for understanding what a business structure means and its many types.
Then, we will move on to the numerous advantage of sole proprietorship as a form of employment as well as its disadvantages and some of its popular examples.
Read more: E-Business Vs E-Commerce - What's The Difference?
What Is A Business Structure?
It would make no sense to talk about self proprietorship without even considering it as a business structure and comparing how it differs from other forms of business structures.
A business structure refers to the legal form that a business takes, which determines the ownership, management, and liability of the business.
It also affects the way the business is taxed and can impact the personal liability of the business owners.
It is important to carefully consider the needs of your business and seek professional advice to choose the best structure for your business.
How Many Types Of Business Structures Are There?
Now, let’s look at the many types of business structures.
There are several types of business structures, including:
1. Sole Proprietorship:
A business that is owned and run by a single individual who is responsible for all debts and obligations incurred by the business.
A business that is owned and run by two or more individuals who share profits, losses, and responsibilities for the business.
3. Limited Partnership:
A partnership in which one or more partners have limited liability for the debts and obligations of the business, while others have unlimited liability.
4. Limited Liability Company (Llc):
A type of business structure that combines the liability protection of a corporation with the tax benefits and flexibility of a partnership.
Fact: Around 2.5 million single-member LLC returns were submitted in 2019 (there were only 126,000 in 2001). These LLCs currently make up 8.8% of all Schedule C filers, compared to only 2.3% in 2001.
It is a legal entity separate from its owners, with the power to enter into contracts, sue or be sued, and own assets in its name.
6. S Corporation:
A type of corporation that provides limited liability protection to its owners, while being taxed as a partnership.
A business type that is owned and controlled by its members, who share in the profits and losses of the business.
Note that each type of business structure has its advantages and disadvantages, and the best structure for a particular business will depend on the business goals, size, ownership, and legal and tax requirements.
Read more: How To Develop A Business Growth Plan: A Guide For Beginners
Learning More About Sole Proprietorship
A sole proprietorship is a type of business structure in which a single individual is solely responsible for business operations, finances, and profits.
This means that the business owner is personally liable for all debts and obligations incurred by the business.
In a sole proprietorship, the business owner makes all decisions, manages the day-to-day operations, and is responsible for generating revenue and profits. It is often also known as self employment.
There is no legal distinction between the business and the owner, and the business operates under the owner's name.
Sole proprietorships are the simplest and most common type of business structure and are often used by small business owners and independent contractors.
Many Advantage Of Sole Proprietorship
Sole proprietorship or self employment comes with many advantages. This is what makes it so favorable as a form of employment for many people.
Other advantages of a sole proprietorship include:
1. Ease Of Setup:
Sole proprietorships are relatively easy and inexpensive to set up, as there are few legal requirements and no need to file formation documents.
There is no need to legally register your firm or inform federal or state officials as long as you are the owner and responsible for activities.
Only the fees required to register your business name and obtain the necessary licenses and permissions are involved.
A sole proprietorship can unintentionally be started when you work as a contractor or freelancer and do business under your name, outside of these rules.
2. Complete Control:
As the sole owner of the business, the sole proprietor has complete control over all business decisions and operations.
Making judgments based on the desires of shareholders or the needs of legal partners is not necessary. You can change your strategy as necessary and expand your startup in whatever way you see fit.
3. Tax Benefits:
One of the biggest advantages of sole proprietorship is the tax benefits it offers. Sole proprietors are considered self-employed, and as such, they are eligible for several tax deductions.
For example, they can deduct business-related expenses such as supplies, office expenses, and travel costs.
They also have the option of paying estimated taxes throughout the year rather than paying one lump sum at tax time.
A sole proprietorship offers significant flexibility for entrepreneurs and small business owners.
As the sole decision-maker, owners can make changes quickly and adapt to market conditions without the need for consensus from partners or shareholders.
They also have the freedom to set their schedules and make decisions about their business without needing approval from anyone else.
5. Low Overhead Costs:
Another benefit of a sole proprietorship is the low overhead costs. Unlike other forms of business structures, there are no corporate income taxes or fees to incorporate.
This can save business owners significant amounts of money, especially in the early stages of their business.
Additionally, there is no need for a separate legal entity, which can simplify accounting and reduce legal expenses.
Read more: What Is The Most Profitable Business In Pakistan To Start In 2023?
Disadvantages Of Sole Proprietorship
While sole proprietorship has some advantages, it also has some disadvantages that may make it a less suitable structure for certain types of businesses.
Some disadvantages of sole proprietorship include:
1. Unlimited Personal Liability:
The sole proprietor is personally responsible for all debts and obligations of the business, which can put their assets at risk.
2. Difficulty In Attracting Investment:
Since a sole proprietorship is owned by a single individual, it can be difficult to attract investment from others.
3. Limited Lifespan:
A sole proprietorship typically has a limited lifespan, as the business may end when the owner retires, becomes incapacitated, or passes away.
4. Difficulty In Establishing A Professional Image:
A sole proprietorship may have difficulty establishing a professional image, as it may be perceived as a smaller or less established business compared to other business structures.
7 Examples Of Sole Proprietorship
From February 2020 to January 2022, 16.5% of all proprietors workers worked in the construction sector.
Other examples of sole proprietorship businesses include:
- Home-Based Bakery
- Pet-Sitting Service
- Lawn Care Business
- Beauty Salon
- Personal Chef
Become A Reseller With Markaz
Markaz is a social commerce platform that allows many individuals to start a business from scratch with zero investment and no hassle.
It is an amazing opportunity for people looking for a part-time online work opportunity and is suitable for people from all walks of life. Whether you are a corporate professional, student, or housewife, Markaz lets you make some money in your spare time.
These are the benefits of using a platform like Markaz for reselling:
1. 10,000+ Products:
Resellers who are using Markaz have access to a wide range of products and services, allowing them to meet the needs of a diverse customer base; thereby, increasing sales and growing their business.
2. Fastest Growing Community:
With a continuously expanding community of resellers, Markaz offers a helpful network and important resources to promote reseller success.
This may entail having access to marketing resources, receiving training and support, and having chances to work with other resellers.
3. 90% Cities Covered:
Markaz covers 90% of cities in Pakistan, providing a wide reach and access to a large customer base.
As a result, the company's sales may grow, and resellers will have the chance to connect with new clients in new markets.
In conclusion, these advantages might offer resellers beneficial chances to expand their businesses, attract new clients, and raise their earning potential.
In conclusion, sole proprietorship offers several advantages for entrepreneurs and small business owners. It allows for flexibility, ease of setup, and full control over the business.
Additionally, sole proprietors are entitled to all profits generated by the business and can make decisions quickly without the need for consensus from partners or shareholders.
However, it is important to note that sole proprietors also assume complete responsibility for the debts and obligations of their business, which can put their assets at risk.
Before starting a business as a sole proprietor, it is important to consider the pros and cons and seek professional advice as needed.
The safest option that you can consider is reselling products, especially with a reliable platform like Markaz that allows you to set up your own business with zero investment involved.
Read more: The top 5 online business advantages that the Markaz app offers resellers
What are 5 characteristics of a sole proprietorship?
Below are the five key features of a sole proprietorship:
- Sole Ownership
- Unlimited Liability
- Minimal Formality
What is the owner of a sole proprietorship called?
The owner of such a business structure is called a proprietor.
What is sole proprietorship in Pakistan examples?
Grocery stores, pharmacies, bars, general stores, photographers, doctors, and attorneys are some examples of sole proprietorships that are often seen in Pakistan.