Business Entity: Sole Proprietorship

October 26, 2009 by Tyrone
Filed under: Entrepreneurship

Let’s now review the three common business entities: Sole Proprietorship, Partnership and Corporation. In the US, there is one additional entity called LLC or Limited Liability Companies but since this is not applicable here in Philippines, let’s skip that for the moment.

Let’s go first with the most common - Sole Proprietorship. “Sole”, as the word implies means “one” - you are the only sole owner of your business and you don’t have anyone to share your profits or losses.

Kiyosaki said that this is not the entity of business that he can recommend. As a sole proprietor, all you need do is decide the nature of your product or service, advertise, and start plying your trade. You won’t have to deal with complicated legal documents or hire expensive legal advisors.

Sometimes paperwork is still required for sole proprietorships, so make sure you check with the proper local government entities and obtain any necessary documents. For example, you may need a business license or a Mayor’s Permit. Relatively speaking, the legal matters associated with establishing a sole proprietorship are simple and straightforward, things you can tend to yourself. However, this is a very risky way to start a business.

Rich Dad Tip:

“The important word in sole proprietorship is sole. You alone are responsible and liable. Do you want your personal assets put at risk if there is a problem with your business?”

Is a sole proprietorship for you?

Sole proprietorships offer people the opportunity to run their businesses as they see fit, with minimal intrusion from the government. You are the sole owner, and decisions and profits are all yours. The sole proprietorship requires little paperwork and is the simplest business entity to operate. Moreover, if you decide to discontinue your business, no one else need be consulted: Pay off your debts, liquidate your assets, and close up shop.

A sole proprietorship is ideal for people like freelancers and consultants who want to keep their businesses small and their staffs limited. If you intend to bring in partners or you need investors, the sole proprietorship won’t work because it precludes anyone else from owning equity. Nor is the sole proprietorship ideal if you have reason to be concerned about liability. As a sole proprietor, you are personally liable for all the debts your business incurs. All of your personal assets are also at risk because you choose to operate as a sole proprietor. Liability can be a big drawback.

As they say: “Two heads are better than one”.

Source: Robert Kiyosaki’s Coaching Program

To get articles, you can subscribe using your favorite RSS feed reader or have them delivered directly to your email address

Bookmark This Page:

What To Read Next

Search for more:

Tags: Business, kiyosaki

Comments

11 Comments on Business Entity: Sole Proprietorship

Dana@Online Knowledge on Mon, 26th Oct 2009 11:14 am

can the sole proprietorship business become big? I ask because I like to have an sole proprietorship business. This kind of business more fit for me in my opinion, but of course i need it to be big someday.

[Reply]

Tyrone Reply:
October 26th, 2009 at 11:30 am

Yes, sole proprietorship can also be big. But as you become big, you need more capital and more resources. Most probably, you would expand and that’s where you would need investors in the form of equity holders and business partners. Eventually, you would need to convert it either to partnership or corporation.

[Reply]

Rocky Garcia on Mon, 26th Oct 2009 12:10 pm

Although sole proprietorship is complicated, it still the best way to earn income. Tyrone is right. Once your business grow you’ll need a lot of capital and resources to keep your business running smooth.

Thanks for posting! There’s a lot of things to learn here!

[Reply]

livingstain on Mon, 26th Oct 2009 1:07 pm

kailangan ko pa bang iparehistro sa BIR ang business kong ako lang ang may ari, una sa lahat hindi naman ako nagiissue ng resibo kasi hindi naman araw-araw ay may customers ako…

[Reply]

Tyrone Reply:
October 26th, 2009 at 1:51 pm

Legally speaking, yes, you still need to register it with BIR although a lot of small sole proprietorship companies don’t.

But I think that your customers or clients have the legal right to ask for a receipt for the product or service that you did for them. When that case happens, you cannot issue one and your business can become a subject for scrutiny.

[Reply]

romeo on Mon, 26th Oct 2009 1:09 pm

di ba yan yung mga business na mayroon lamang maliit na kapital. tama ang nabasa ko, sayo lahat ng risk, pero if magtagumpay sayo din LAHAT ng kita…

[Reply]

Neo on Mon, 26th Oct 2009 6:24 pm

Most freelance business can be termed sole proprietorship…if I’m correct.
Anyway nice post….got to know something very important.

TC
Thanks

[Reply]

Gabe | freebloghelp.com on Mon, 26th Oct 2009 11:18 pm

Right now, all of my businesses are LLC. For me, I find that LLC’s are perfect for the protection that I need.

[Reply]

Financial Samurai on Tue, 27th Oct 2009 2:30 am

Intersting Tyrone. Did you incorporate this site? What are your thoughts on trademarking your name and tagline etc? Thnx man.

Also, if you’re serious about getting an MBA, and the $1,000 giveaway at Financial Samurai, I’m more than happy to talk to you more.

[Reply]

Tyrone Reply:
October 27th, 2009 at 7:46 am

Yes, I made this site but I hired a web developer before to register the domain and for the hosting.

With regards to the domain name “Millionaire Acts”, it was born out of the Law of Attraction. The famous law in the movie “The Secret” which says that “if you want something, all the universe will conspire in helping you to achieve it.” It has become my trademark since then in the blogosphere.

Basically, I want to become a millionaire someday and that’s why it was called “Millionaire Acts”. With regards to the tag line, it’s basically the goal of this site - to achieve financial freedom.

In Third World Country like here in the Philippines, I think that right education and financial literacy are the keys to lessen if not to eliminate poverty.

[Reply]

Devon Business Directory on Thu, 29th Oct 2009 10:39 pm

I think sometimes a sole proprietorship is a good way to start, especially as it’s much simpler - a limited company has a lot more bureaucracy to deal with. Also to some extent you can get insurance against liabilities. But when you get into bigger contracts, often they will require you to be a limited company.