The term Sole Proprietorship (or Sole Trader) is the term for a natural person, who runs a business, has income from an entrepreneurship or any other independently profitable activity.
Sole proprietorship in practice: Any entrepreneurship by natural persons is regulated by the legislature of a given state or country. Generally, a certain type of licence is required (in the Czech Republic, this is a trade licence. For that reasons, the conditions for starting a sole proprietorship differ from country to country. There are however, some common aspects in the rules applying to independent business people:
- Sole proprietors do not form a formal organisation, they have a high level of flexibility – they decide and act for themselves
- they own all assets
- they vouch for their business with their entire property
- they are not a legal person
- the business is directly linked to an actual person, there is no assurance of continuity as with legal persons
- there is usually a low level of working capital
To undertake business as a sole proprietor is advantageous for certain professions like consultants, doctors, legal experts, tradesmen, artists, farmers, programmers etc. Usually, these are professions which can be carried out independently and which do not require a large amount of capital.
Related terms and methods:
Related areas of management: