Overview of Sole Proprietorship
A sole proprietorship is owned and controlled by one person. It has no separate legal existence apart from the owner. The sole proprietor has unlimited liability for business debts and losses. A sole proprietorship differs from an LLC or corporation in that there is no legal or financial separation between owner and business.
Advantages and Disadvantages
Advantages include less paperwork, easier tax setup, and simplicity in getting started. Disadvantages are unlimited liability, limited access to capital, and difficulty in hiring employees. The life cycle of a sole proprietorship is tied to its owner. An incapacitated owner may negatively impact the business.
Expansion Challenges and Solutions
Sole proprietorships have no turnover limit for registration under Goods and Service Tax in India. The limit is 40 lakhs for suppliers of goods and 20 lakhs for service providers. Expanding a sole proprietorship may require transitioning to a partnership, limited liability entity, or corporation. Problems can arise regarding machinery purchases, raw material purchases, manufacturing, storage, marketing, and hiring skilled workers. Raising finance to fund expansion is also an issue. Forming partnerships is one way to overcome these limitations.