Sole Proprietorship
One of the basic and early decisions a new business owner has to make is choosing the legal form of business ownership and organization. The legal form of business is not only related to business nature or the owner’s desire but also to its significance in terms of the long term implications on business performance and survival. (Alhabeeb, 2016, p. 49)
I have selected sole proprietorship for the following reasons; it is the simplest form of business that is cheap to operate and has low start-up costs with minimal efforts and paperwork. It allows total freedom in making decisions and the owner has full control over operations. The owner collects all profits and does not pay additional business taxes other than his/her own tax. It’s a perfect type of business that allows the owner to have high level of secrecy in keeping information and is easily dissolved. A sole proprietor does not require any formal or complex organizational structure and is not subject to any statutory regulation although there are requirements under the Business Names Act 2014. A sole proprietor has to comply with the Business Names Act 2014 if using another name other than own name and a sole trader will have to comply with other procedures such as renewing a business name, stating the change of the nature of business activity or business name and giving notice of ceasing business operations if necessary. Knowing my legal obligations to operate as a sole trader is as important as having sufficient knowledge about the other forms of entities like those of a partnership and corporations and their purpose and functions in relation to complying with business laws and regulations.
Every person(s) or corporation going into business aims to profit. Some successful owners of large companies started their businesses as sole traders using limited finances and resources and eventually established themselves. It takes a lot of determination, skill, resources, time and knowledge in management practices and accountability for a sole trader to establish its name and reputation in society. Sole traders wanting to start a business for the first time or after being unsuccessful on several attempts can consider some steps in starting a business (Pinson & Jinnett, 2005, p. 9, 17, 35, 39).
? Finding a business – starting a brand new business has benefits and drawbacks which requires investment capital, a chance of survival and expected profits.
? Determining feasibility – Do things that are practical, what can be done. Who are your customers and are they interested in what you are going to provide? Will you generate enough revenue that will cover your financial obligations, business and personal expenses? Allow your business to expand by putting aside some revenue for your business.
? Choosing a location – the location you choose should be right for the type of business you will operate. Applying management skills in market segmentation, targeting and positioning will help you identify your target group of customers. Your aim is to bring value to customers where they can easily and safely access your products.
? Choosing a business name – deciding on what your business will be, you have to come up with a name that will relay to the nature of your business activity. Selecting a name is not easy, it considers careful research because the name explains who you are, how you are perceived and identified in the marketplace.
As outlined by Pinson and Jinnett, as a guide for small business owners helps me identify my position before establishing a business. The purpose of my business is to supply mainly fresh fish. Other saltwater crustaceans like prawns, crayfish, mangrove crabs, mud shells and sea shells will complement the sale of fresh fish. The advantages of having land, building, dinghies, trucks, labour, the finance and an attractive location within the township gives me a perspective of my strengths and weaknesses and how I can better manage my fresh fish business. The tourism industry has rapidly grown in Alotau, tourist ships call in every month and hotels, resorts, restaurants, cafeterias are demanding more supply of sea food to put on their menus for visiting tourists from overseas. Furthermore, there are more health awareness and campaigns on lifestyle diseases and people are encouraged to eat local food and fresh fish. Retail shops, supermarkets, food bars, the hospital, correctional institutions, secondary schools, request every month for a good supply of fresh fish to provide to consumers for sale and to provide nutritious protein to patients, prisoners and students for their meal.
The use of advance technology today is also important as it challenges me to have a good office set up that will cater for effective information system to communicate with all my valued customers.
Mentioned are attractive business opportunities not to miss but then as a sole trader, it is important to be aware of legal implications that will have on the business. The nature of a sole trader has its limitations and disadvantages (Latimer, 2009).
? Unlimited liability – a sole proprietor (Mr. Solo) has unlimited liability, meaning that if the he incurs losses and cannot pay his debts on time, then Mr. Solo’s creditors can possess any of his personal or business assets. Latimer states, “one way to soften the rigours of unlimited personal liability is through the protection afforded by public liability or professional indemnity insurance” (Latimer, 2009, p. 636).
? Limited life – the business may cease operations when the trader dies unless there has been succession planning for the business to pass on to someone else. If the owner encounters death or serious illness, someone else can buy off the business and change the type of business.
? Limited access to finance if the business grows – a sole proprietor is unable to raise funds from partners or buy shares from the public and is limited to everyday sources such as finance companies or mortgaging a property and other financial benefits that may help the business to grow.
In conclusion, as a sole proprietor it is important to have a clear understanding of the nature and structure of a sole trader in business law, the laws that govern a sole trader’s trade practices, formalities to comply with in establishing a business and other legal requirements to consider when intending to be a sole proprietor.
References:
1. An online journal article
Alhabeeb, M.J. (2014). Entrepreneurial Finance: fundamentals of financial planning and management for small business. John Wiley & Sons, Incorporated. Retrieved May 23, 2018, from Divine Word University, http://ebookcentral.proquest.com
2. An online journal article
Pinson, L., & Jinnett, J. (2005). Steps to small business start-up: everything you need to know to turn your idea into a successful business. Dearborn Trade, A Kaplan Professional Company. Retrieved May 23, 2018, from Divine Word University, http://ebookcentral.proquest.com
3. Latimer, P. (2009). Australian business law (28th ed.). Australia: CCH Australia Limited.
