What is a Sole Ownership? The Pros, Cons, and Everything in Between
Sole ownership is a business entity where one person makes all the business decisions. You are responsible for your company’s profit and debts. This is the simplest form of business when compared to other forms of business.
This entity does not offer the separation or protection of personal and professional assets, which could prove to become an issue later on as your business grows and more aspects hold you liable.
Sole ownership (also known as a sole proprietorship) is easy to set up, but one person bears all the early costs. These costs of set up might include business registration expenses, office space, equipment, and others. These costs may vary depending on the type of business you want to set up.
Also read: factors to consider before choosing a business structure
What is a Sole Ownership?
A sole ownership is a business owned and operated by one individual. The owner has unlimited liability for the debts and obligations of the business but is entitled to all profits and losses from it.
In other words, if you lose money on your idea or product line, you’re out on your ear financially because you’ve signed over all ownership rights to someone else.
So why would anyone want to start their own business? For many reasons:
- You don’t have any employees so no need for benefits packages; instead, they can be added later as needed when profits start coming in regularly enough that it becomes worth paying out some extra cash each month.
- You won’t have any partners holding back your potential success because everyone knows where they stand financially with regard to their stake in said venture…and vice versa!
How do I form Sole Ownership in Nigeria?
To form sole ownership in Nigeria, you need to register with the Corporate Affairs Commission (CAC). You will also need to file a Certificate of Incorporation with the CAC.
Once you have completed your registration process, it is time for you to get started on getting your federal tax identification number so that we can start sending out invoices for services rendered by yourself or other employees who work under your business structure.
If VAT applies – then make sure that there are no deductions made from income before calculating cost price at a 25% rate which includes VAT payments made during each month period into which it falls i.e., quarterly basis; annual basis, etc.
Who should own a Sole Proprietorship?
If you’re a single person with a business, sole ownership is the best way to go. It’s simple enough for you to maintain and operate, but it also doesn’t require any formal legal structure like an LLC or corporation.
If what you want is more control over how your business operates and where its profits are directed, then this could be an ideal option for you as well.
If there are multiple owners of a single-owner business and everyone wants an equal say in how things run (and who receives profit), then incorporating may be necessary for fairness among all parties involved.
But if not, incorporating would make sense because two people can’t own half of something together without creating some kind of legal entity which would give them more power than they deserve.
This could end up being messy if they disagree on certain issues like hiring decisions or sharing profits at the year-end time frame when taxes need to be paid out evenly among all employees, so maybe incorporating isn’t worth dealing with those headaches just yet (or ever).
Advantages of a Sole Ownership
- No need to file any paperwork.
If you have sole ownership, there are no forms to fill out or other legal documents to submit.
You don’t need a business license or even a tax ID number for your company—just make sure it’s registered with the right state agency and that you’re paying federal taxes on your profits (if applicable).
- No fees are involved either.
Since there aren’t any filing fees or annual dues associated with running a sole proprietorship, it can be easier than ever before! And since most states don’t require business owners to pay any kind of annual fee for their licenses.
This is also one less thing that could potentially slow down growth if someone decides they want their own business someday but doesn’t yet have enough money saved up for such an endeavor.
- You won’t need an accountant either
Unless otherwise specified by law or contractual agreement made between parties involved in terms regarding finances involving multiple parties’ investments over time periods longer than six months long each year.
- Low cost
Sole ownership generally requires low initial costs to set up, although, the cost depends on your location and the type of product or service you offer.
- Easy to set up
Sole ownership is the simplest form of business, and it requires very little paperwork. But, It is backed by law for the business to hire an employee or contract with an independent consultant for whatever suitable purpose.
- More fluid decision-making process
Since one person is solely responsible for making business decisions, it makes decision-making very fluid and faster as the proprietor ultimately makes the decision for the business without having to wait for a second party.
- Easy business dissolution
A sole proprietorship requires few formal business requirements, which makes it easy for a business owner to dissolve the business at any time with no paperwork. Closing up a sole proprietor may be as simple as shutting down operations and advertising for your business.
Disadvantages of a Sole Ownership
- Lack of legal protection:
A sole proprietorship does not have the same legal protections and rights as a corporation. For example, the liability for all debts incurred by the business is limited to your personal assets (which are usually quite small).
In addition to this, you cannot form a corporation with other people in order to protect yourself from lawsuits or other liabilities that may arise from running your own business.
- Employees can leave at will:
Another disadvantage here is that there’s no way for employees who work at your company under their own contract terms (rather than being hired through an agency) unless those contracts specifically state otherwise.
Otherwise, they’re deemed employees working under “at will” employment terms which means they can always leave anytime they want without notice or compensation.
- Unlimited liability:
The sole proprietor is solely liable for all debts and actions of the company and the company does not exist as a separate legal entity. Therefore, a sole proprietor has to cover all the debt of the business regardless even if the business is bankrupt. The proprietor has to pay from his personal wallet if need be.
- Difficult to raise capital
It is more difficult for a sole proprietor to raise capital in order to grow the business. A sole proprietorship cannot sell stock in order to raise capital, this business will also be unable to attract investors.
- Lack of continuity
Once the owner passes, the business usually dies as well. Unlike other business structures, a sole proprietorship liquidates as the owner dies. The business could only continue if an arrangement was made to pass the business to someone else before he died.
In conclusion, it is tempting to start a business as a sole proprietorship because it is easy to create and conduct your business activities. If you intend to expand your business in the future, it is best to explore other business structures.
The main differences between sole ownership and other business structures
There are two main differences between a sole proprietorship and other business structures:
- A sole proprietor does not need to be incorporated or registered with the government.
This means that you don’t have to pay fees or taxes, nor do you need to file annual reports. However, this also means that your business is not protected by any laws—you’re on your own as far as legal matters go.
- A sole proprietor owns all of the assets in their business.
There’s no partnership involved and no one else has any claim over them (unless they’re borrowing money from another party). This can make things easier when it comes down to issues like insurance coverage and employee benefits but could result in major problems if something goes wrong at work!
If you’re weighing your options for business formation, consider the pros and cons of each.
A sole proprietorship is a great option if you want to start a business on your own, but it has its downsides:
- Sole owners are responsible for everything their business does—and that can be a lot of work!
- You’ll need to pay taxes as an individual rather than as part of an LLC or corporation (which also means having to deal with filing them).
So what is the best option for you? It depends on your goals and needs. If you’re looking to start a business that you can run from home with no outside investment necessary, then sole ownership could be the perfect fit.
But if you want to incorporate it as an LLC or corporation, there are other options out there. The key takeaway here is that whatever structure you choose today will affect the rest of your life—so take some time to think through all of your options before making any decisions!