A sole proprietorship is a business that is owned by an individual. There are no other individuals involved in this business.
The three characteristics that define a sole proprietorship are:
1) It is not a separate legal entity from the business owner
When dealing with a sole proprietorship, it is akin to dealing with the business owner itself. This leads us to the other two characteristics.
2) The business owner has unlimited liability
The business owner is responsible for all debts and liabilities that are incurred by the sole proprietorship. This means that the personal assets of the business owner can be used to claim against the debts and liabilities of the sole proprietorship.
3) The sole proprietorship can sue or be sued in the owner’s name
This is a result of the assets and liabilities of both the business owner and the sole proprietorship being intertwined.
The main reason why individuals would set up a sole proprietorship would be due to cost. Sole proprietorships are less costly to set up and maintain. It will also have much fewer compliance requirements as compared to a company. A company will need to file annual returns whereas a sole proprietorship will not. A sole proprietorship needs to have its registration renewed either yearly or once every 3 years.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at ACRA Filing Agent
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