Types of companies- Sole Proprietor

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In this article, we will understand a bit about the various types of company accounts or rather differentiation on the way the company is formed.

The first and the foremost way through which a company is formed is a Sole Establishment or in legal terms Sole Proprietorship. This means that the company is owned by a single individual and is the whole and sole owner of the company.

This is the most simplest of companies as no other person is involved in the decision making process and moreover for a Bank account opening process will be really simple. This is because of the fact that the documents of the company are limited to the trade license of the company and a letter issued by the trade license issuing authority confirming the ownership and share holding of the company.

A sole proprietorship is the oldest forms of companies wherein people do not trust on any one else or wants to keep the ownership rights and decision making powers with himself. In such companies their is no difference between the company and the owner in legal terms as the complete profit earned by the company is his and if their is any loss, he may have to use his personal assets as well to make good the loss.

Their are many advantages and disadvantages of opening a sole proprietor company. Advantages being he is responsible for his own decisions and is not answerable to anyone else apart from himself and his family for any profit or loss arising out of that decision. A major disadvantage of such companies is unlimited liability wherein all assets belonging to the company or the individual are attached with the companies liabilities and if due to any unforseen circumstances, the company goes into losses, these will be utilized to make good the losses of his creditors.

Another important advantage of having a sole proprietor company is that the company is not treated as a separate legal entity and hence the owner need not file a separate tax return for the income earned out of his business. His income and the company income is treated as one and the same and hence taxation is levied only on the individual capacity of the owner.

Finally, a sole proprietor does not have the option to leverage on other peoples time and has to invest a lot of time and has to work with complete dedication. He will never have a dedicated work timing as customers may come anytime and he will be obliged to serve them as every business that comes is important to him and his family.