a study on risks and threats involved in sole … · a study on risks and threats involved in sole...

A STUDY ON RISKS AND THREATS INVOLVED IN SOLE PROPRIETORSHIP

1S. Madhu Balaaji ,

2Dr.A.Jency Priyadharshany

1BBA LLB(Hons), Saveetha School of Law, Saveetha University, Saveetha Institute of

Medical and Technical Sciences ,Chennai77, Tamil nadu, India.

2Assistant Professor,Saveetha School of Law, Saveetha University, Saveetha Institute of

Medical and Technical Sciences ,Chennai77, Tamil nadu, India.

[email protected] , [email protected]

Abstract

This article aims to provide knowledge about sole proprietorship and what

are the merits and demerits of this type of ownership and most of all stressing upon

the risks involved in setting up a business as a sole proprietor. This also attempts to

lay down steps on, how to set up a sole proprietorship and how to manage it. A sole

proprietorship, otherwise called a sole trader, is an unincorporated business with a

solitary owner who pays individual income tax on benefits earned from the business.

In other words it can called as the type of entrepreneur who has full authority and

control over his business and s answerable to no one but himself. With little

government control, a sole proprietorship is the least difficult business to set up or

dismantle, making sole proprietorships mainstream among singular self-contractual

workers, specialists or entrepreneurs. Many sole proprietors work together under their

own particular names in light of the fact that making a different business or exchange

name isn't fundamental. More often than not, when a sole proprietor tries to

consolidate a business, he rebuilds it into a LLC. To begin with, the name of the

organization should be accessible. On the off chance that the coveted name is free,

articles of association must be documented with the state office where the business

will be headquartered. After printed material is recorded, the entrepreneur must make

a LLC working assertion, which plots the business structure. At long last, a work

distinguishing proof number (EIN), like a Social Security number for organizations,

International Journal of Pure and Applied MathematicsVolume 120 No. 5 2018, 4171-4181ISSN: 1314-3395 (on-line version)url: http://www.acadpubl.eu/hub/Special Issue http://www.acadpubl.eu/hub/

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should be gotten from the Internal Revenue Service (IRS).

Keywords: Business, Entrepreneur, Organization, Sole proprietorship, Sole proprietor,

Utilize.

Introduction:

A sole proprietorship, otherwise called the sole trader or just a proprietorship,

is a sort of big business that is claimed and keep running by one common individual

and in which there is no legitimate qualification between the proprietor and the

business substance. The proprietor is in coordinate control of all components and is

lawfully responsible for the funds of such business and this may incorporate

obligations, credits, misfortune, and so forth.(Ding 2009)The sole trader gets all

benefits (subject to tax collection particular to the business) and has boundless

obligation regarding all misfortunes and obligations.(Marandi, Bazmi, and Ameri

2015)Each benefit of the business is possessed by the proprietor and all obligations of

the business are the proprietor's. It is a "sole" proprietorship interestingly with

associations (which have no less than two proprietors).

A sole proprietor may utilize an exchange name or business name other than

his, her, or its legitimate name. (Trishala A , Lakshmi T and Rajeshkumar S, 2018)They

may need to legitimately trademark their business name in the event that it contrasts

from their own lawful name, the procedure fluctuating relying on nation of living

arrangement.(Hollender 2009)A sole proprietor beginning another business includes

his or her incorporating a strategy for success identified with aspirations for

improvement and decided outcomes to be achieved.(Hollender 2009; “Figure 6.2

Administrative Burdens on Starting-up for Corporations and Sole Proprietor Firms,”

n.d.)Sole proprietors are occupied with numerous assortments of industry and trade

and an exhaustive rundown of the essential classes, is found in the North American

Industry Classification System (NAICS).

The determination of a business sort by another sole proprietor is in many

examples, inspired by proper business involvement in a specific field, particularly

those relating to enterprises including the showcasing and offering of characterized

items and administrations. (Schaffer et al. 2018)A vital segment of a sole

proprietorship inside a marketable strategy is the arrangement of an innate rule, for

activities that require executing for a business to accomplish development.(Baron

International Journal of Pure and Applied Mathematics Special Issue

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2013) The business name and items are basic viewpoints in the establishing of a sole

proprietorship and once chose, ought to be secured. In case of a decided brand name

being sanctioned, data with respect to trademark insurance is accessible from the U.S.

Patent and Trademark Office.(Evans 1981)

Aim of the study:

To find the risks involved in being a sole proprietorship

Material and methods:

The study is collected from national and international journals, books and

publication from various websites which give importance to Sole proprietorship.

Means of finance:

For the sole proprietor there are an assortment of choices in acquiring

monetary help for their business, including credit offices accessible from the U.S.

Private Company Administration.(Greenblatt 2011)The advances are not begun by the

SBA, but rather the organization guarantees advances made by different autonomous

loaning foundations. The essential credit office for private companies offered by this

organization is the 7(a) advance program, intended for general applications. Sole

proprietors can fund true blue (Dr.Lakshmi T and Rajeshkumar S , 2018)working costs;

for instance, working capital, furniture, leasehold enhancements and building

remodels.(Firm) 1966) Numerous and fluctuated private associations and people look

for chances to contribute and subsidies a business that may not fit the bill for

customary financing from organizations, for example, banks. For the sole proprietor,

trying to exploit this office, there are different variables that must be comprehended

and clung to in regards to the advance application.(Wang, Liu, and Li 2008)The Small

Business Administration (SBA), informs there are generally two structures regarding

financing; obligation and value.

For any entrepreneur looking for subsidizing, they should consider the obligation to-

value proportion of their enterprise. (Woodard 2016)This implies the between activity

between the whole of dollars acquired and the money related dollars put resources

into the business. The arithmetic are straightforward; more prominent the back put by

sole proprietors in their business; simpler the acquiring of fund The SBA insights

demonstrate that the lion's share of little enterprises support the utilization of

constrained value financing; for instance, companions and relatives. As per the Small


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Business Administration, there are different private associations arranged to finance

sole proprietor business operations that don't fit the bill for conventional financing

from banks.

These private speculators can give advances, credit lines, renting offices for

gear, or different types of capital, to sole proprietorship that have depleted option

money related assets. It is additionally feasible for these proprietors to get financing

by method for business accomplices or others, with money to contribute. Money

related accomplices are much of the time "noiseless" and in spite of the fact that they

don't take part in any business related choices, they by and large get a level of the

benefits, created by the business. To help sole proprietors, there are business gifts

accessible from the Federal Government or private associations, giving certain criteria

are met. To fit the bill for Federal grants, small Organization must consent to decided

business size and wage principles. For thought with respect to different concede

openings, sole proprietors may apply for a given in their ability as a person. Nearby

governments and state monetary improvement offices, every now and again make

stipends accessible, for Organization that fortify their neighborhood economies. For

any sole proprietor applying for an advance, before beginning the advance technique,

it is fundamental their own and business record of loan repayment is all together and a

la mode. An individual credit report ought to be gotten from a credit department; for

instance, Trans-Union, Equifax or Experian. This activity ought to be started by an

entrepreneur a long time before beginning the getting procedure. The Small Business

Administration indicates that all credit reports got from any source ought to be

precisely checked on to guarantee that all applicable individual data is right. Other

substance in the report ought to likewise be inspected especially that identified with

the past credit acquired, from sources, for example, Visas, contracts, understudy

advances, and in addition subtle elements relating to how the credit was reimbursed.

How to set it up?

A few states have laws commanding that sole proprietorship enroll and get

business licenses. Moreover, you ought to likewise ensure that you have all the

required licenses that enable you to play out your obligations.(Luoma, n.d.)It's

likewise imperative to understand that you ought not to endeavor to utilize your

business as a duty safe house or some other escape clause, as any benefits that your

business sees will mean you as pay for your own expense form. By expansion, if your


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business owes any obligations, you owe those obligations, and lenders can come after

your own advantages if your business can't bear to pay.

Expenses and Sole Proprietorships:

Not at all like a company, which is its own expense substance, a sole

proprietorship does not pay imposes as a business. Rather, on the grounds that the

business and the proprietor of the business are one and the same, the expenses "go

through" the business to the proprietor. This implies all business benefits and

misfortunes are accounted for on the proprietor's assessment form. In the event that

you do set up a sole proprietorship, you should be in charge of paying your

assessments without anyone else's input. (Briggeman, Towe, and Morehart 2009)This

implies in addition to the fact that you should self-withhold charges for the IRS and

the express that you live in, yet you additionally should pay charges for standardized

savings and Medicare. You should take part in an "independent work impose."

Sole Proprietorship Registration:

As a proprietor of a sole proprietorship, you will likely not need to

experience an indistinguishable procedure of enlisting from a LLC or an enterprise.

When you begin your new business, you will basically proclaim that you are running

a sole proprietorship as opposed to recording printed material with the state making a

company.

Practically every city and region in the country requires that any business,

even a sole proprietorship, enlist and pay no less than a little assessment, in any case.

As a by-products of this expense and enlistment, your business will get a business

permit and duty enrolment declaration. Notwithstanding these archives, you ought to

likewise approach getting a government boss recognizable proof number from the

Internal Revenue Service(Furlan 2014) (so you can withhold charges from your

representatives), a permit to offer from your state, and a zoning grant from your

nearby land arranging board in the event that it is required. Likewise, in the event that

you anticipate working together under a name other than your own particular

legitimate name, you will presumably be required to enroll that name as an

"imaginary business name" with your nearby province or state government.

Demerits of Sole Proprietorship:

The sole proprietor of the business can be held by and by subject for the

obligations and commitments of the business. Also, this hazard reaches out to any

liabilities acquired because of acts conferred by workers of the organization. All


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duties and business choices fall on the shoulders of the sole proprietor. Financial

specialists won't for the most part put resources into sole proprietorships. Most sole

proprietors depend on advances and individual advantages for at first back their

business. Some will choose to join once the business has begun to develop, while

different entrepreneurs keep up their sole proprietorship for a long time.

1. Restricted capital:

The monetary assets of a proprietor are exceptionally restricted. His assets are

not sufficiently satisfactory to begin expansive scale operations.(OECD 2015)

2. Absence of specialization:

The administrative capacity of the proprietor is restricted. Every one of the

qualities such a judgment, astuteness, and so on required for achievement in business

are once in a while found in one individual the proprietor is overburdened with an

excessive number of assignments.(Lewis, n.d.)

He may submit mistakes of judgment and his choices might be hurried. Sole

proprietorship can't bear to utilize proficient specialists. Therefore, the advantages of

division of work are not accessible.

3. Boundless risk:

The proprietor is actually obligated for every one of the misfortunes of

business. Dread of loss of individual property because of disappointment of business

makes the proprietor extremely mindful and preservationist.(Calder 2005) Therefore,

the business may neglect to develop and keep pace with new advancements in its

specific field.

4. Unverifiable life:

Sole proprietorship detests coherence of presence. It is dependent on the life of

the proprietor.(Gothard 2017) Business may grind to a halt because of the disease,

indebtedness and demise of the proprietor. His successors may not be sufficiently able

to bear on the business effectively.(Sitarz 2011)

5. Constrained degree for development:

Because of impediments of capital and administration, proprietorship business

can't develop and extend to an expansive size. Its generosity and bartering position are

additionally feeble. (Price, Herrington, and David Haddock 1998)

Therefore, one man control is the best on the planet gave the man is sufficiently

enormous to oversee everything. In any case, such a man isn't accessible.(Fontana


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2010) Along these lines, sole proprietorship is reasonable just for little and basic

organizations.

Findings:

It is found that a sole proprietor may not be a specialist in each part of

administration. He/she might be a specialist in organization, arranging, and so on. An

individual who is to become a sole proprietorship should know all the risks involved

in setting up an enterprise solely and therefore the proprietor must analyze, research

about the market and prepare the funds and then confidently enter the market.

Suggestion:

● Setting up of sole proprietorship is difficult as he has no other person to aid

him through the process.

● The person should carefully make a decision as once decisions are made it

might lead to irrecoverable losses.

● The person should be mentally stable to face loss when it arises which is one

of the key point for the survival in the business world.

● He/she shouldn’t expect profit at the starting period of the business as the firm

or when business is at the growing stage and only when it reaches maturity it

yields profit.

● Should consult experts before taking a decision, that is, he/she must seek the

help guidance of a market analyst or a experienced person in the market to

equip himself/herself for the business world.

If a person is able to provide or is going good with these conditions then sole

proprietorship is a good choice of business or else he/she could look up into

partnership.

Conclusion:

A sole proprietor may not be a specialist in each part of administration. He/she

might be a specialist in organization, arranging, and so on. However might be frail in

advertising. Once more, due to restricted money related assets it is likewise

impractical to utilize an expert supervisor. Along these lines, the business needs

advantages of expert administration. Numerous organizations get their beginning as

sole proprietorships, and some even remain with that structure until the finish of the

business. Sole proprietorships have many preferences: they are snappy and simple to


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set up, they don't require a lot of cash, and bookkeeping is basic. Be that as it may,

sole proprietorships have many impediments also. One man control is the best in the

world provided the man is big enough to manage everything. But such a man is not

available. Therefore, sole proprietorship is suitable only for small and simple

businesses.

Conflict of interest:

I have chosen this topic because in this dynamic world of business, entrepreneurs and

sole proprietors emerge each day, through this paper anyone who wants to start up a

business can know about the risks and threats involved in starting up a business as a

sole proprietor.

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