Sole Proprietorship - Literature review Example

Name: Course: Date: Professor: Sole proprietorship Introduction Most of the businesses in Australia according to Larson, operate in the form of sole proprietorship, following some of the simplicities associated with both the formation and the operations of the said business (2004, p 2). The business is owned by a single individual under whose ownership it is registered, and under whose responsibilities all the legal liabilities befalls in case of the latter, even in cases where the employees if any, are the sure cause of the liabilities in mention. According to Larson, the ownership of the business in mention is not detached from him as a person since, in case of either’s debts, they are all treated as the owner’s responsibility and in most cases may affect other forms of assets the owner has, including their share of property owned jointly with other people(2004, p 3).Heasserts that to start a sole proprietor business, it is paramount to consider the risks involved in the services one is providing to his or her clients, and or the possibilities of accessing a business loan in the future (2004, p 3). This research paper seeks to explore some of the legal requirements of starting a salon business as a sole proprietor business in Australia, as well as exploring some of the pros and cons associated with the latter. Legal requirements According to Chinmoy, establishing the name of the business one wants to start is key to both getting the business registered as a sole proprietor business, or a corporate entity (n.d, p. 1).He observes that in cases where the business owner wants to use his personal name directly for instance “Chris Raymond “one doesn’t need to register as it is optional. He additionally argues that in an instance where the owner decides to use his personal name from any additional word or choosing to entirely use a brand name other than their personal name, is mandatory according to the Australian laws to have the business registered with the Australian Securities and Investments Commission, where upon registration the name will be registered all over Australia (n.d, p. 2). According to Chinmoy, to facilitate the successful completion of the latter, the proposed business name is checked on the register to confirm that it is not being used by another business by the clerk, as the name should be separate from each other for the sake of dissimilarity(n.d, p.3),. Upon successful application and registration, the registered name should appear on the business premises and on all other business documents henceforth. Henrekson & Johansson, argue that a sole proprietorship needs to obtain a Tax File Number (TFN) since their businesses are taxed individually to enhance their income taxation (2010, p. 5). This means that income taxes are paid in most cases just like the owners pay their personal tax. In instances of the business registering losses, or profit, both are recorded in the owner’s annual tax returns.They assert that for the sole proprietor businesses that do not have a goods and services tax, it is not a requirement that they register for the Australian Business Number- which is a unique eleven digit number used for the purpose of business identification- but can choose to in cases of need (2010, p. 6). The government regulates the registration of such on the basis of qualification upon assessment. Simon observes that it is business wise to have the ABN since failure to have the latter on one’s business invoices, calls for the other businesses to withhold up to 46% of the payments, which is a legal provision under the Australian laws (2009, p. 23). Registration for the goods and services tax is vital if one is interested in collecting the latter, although, it becomes a legal requirement when the business attain a gross income exceeding $75000 per annum, as Simon points out (2009, p. 24). When operating a sole proprietor business, one needs to be aware of the risks involved depending with the nature of the service one is providing to the clients. The owner may operate either personally or employ some employees to offer assistance depending with the nature of the business. According to Wiederman any form of liability both personally caused or and caused by an employee, is directly a prerequisite of the sole owner (2013, p. 13). This depicts the unlimited risks involved on all the assets the owner has either personally and or jointly with another person. Wiederman points out that to minimize the risks of the liabilities involved; it is advisable to conduct a property valuation to ascertain the value of insurance cover upon which to pay for the sole proprietor business (2013, p.15). Advantages According toStam and Wennberg,the business is easy to set up following its easy procedure to register for license and the small capital involved in setting up the business (2009, p.22). Just like it is easy to set up, winding it up is also easy as it is always under the discrepancy of the sole owner. The profits and the risks involved all belong to the single person owning the business thus, they observe that, to attain the latter, the owner puts much effort to the realization of huge profits and reduce the liabilities involved in the business (2009, p.24). The fact that the profits can be increased with the direct involvement of the owner directly, gives one the sense of direct motivation to put more effort to achieve the best. Since there is no limitation on matters of consultation and making major decisions, it is easy as Stam and Wennbergpoint out, for the business owner to make necessary changes promptly to suit the nature of the course one wants(2009, p. 28). This timely response and reaction to the changes needed, is important to adapting to the market needs. Although one can have employees working for him or her, sole proprietorship according to Schreter gives the owner better control, considering he makes key decisions, and has full control of all the activities from planning, to coordination to executions of the activities in mention (2011, p.11). This direct involvement gives the owner full control over his business which one can do better for his own benefit. Owing to the fact that the sole business owner keeps the business future plans, the competencies, strategies and other business secrets, Schreter observes that the business secrets are upheld since he does not necessarily need to share them with anybody who may disclose(2011, p.17). The involvement of a sole business owner in the daily running of his business according to Schreter gives one an opportunity to know his workers wellas well as acknowledging the likes and the dislikes of the clients upon which one can use to enhance the quality of the services provided in the business, this close interpersonal relations between the management, the clients and or the employees, streamlines the running of the business (2011, p.19). Due to the nature of single handedly making the business decisions, the operations becomes flexible and thus, AllBusiness.com, ascertain that adjusting to the business needs becomes crucial in realizing the requirements that would facilitate growth of the business (2007, n.p). Disadvantages Following the nature of the business single ownership, AllBusiness.com citesfunding of the latter as a challenge in the sense that the owner uses his own savings or personal loans from an institution thus limiting ones funding capability(2007, n.p)The sole business owner cannot as Simon (2006, p. 31) observes possess all the necessary talents to facilitate the necessary growth, in response to the current market demands. Such a feat calls for a diversified management, which would incorporate different ideas on different business areas; to facilitate the growth and enhance the business’ competitive advantage. The unlimited liabilities associated with the sole proprietorship according to Simon, risks all the assets the owner has in the event of a damaging litigation which would warrant huge compensation (2006, p. 32). Thus, the latter should be well considered to limit the possible losses of the personal property. Sole proprietorship involves huge risks of discontinuity as Simon observes, following the possible death of the owner, even in the precedents of an heir who may lack the owner’s business skills and passion (2006, p. 37). Due to the risks involved ranging from limited capital, unlimited liability, limited management, as well as the property risks involved, Crusto points out that sole proprietorship is not ideal for a large scale business venture (2009, p. 76). This follows the fact that the business in the events of a large scale business, the risks would be so enormous as to jeopardize the operations and the management of the business in its entirety. In the events of expansion to various branches, Crusto observes that maintaining personal contact between the employees, the customers, the suppliers and the proprietor, becomes so strenuous since the owner cannot be all over at the same time (2009, p. 79). The latter limits the timely responses to the client’s needs and preference as well as catering to the employees’ immediate needs to facilitate a smooth running of the business. In as much as the sole business owner may possess some extra ordinary business talents, Crusto observes that one cannot manage to become an expert in all business fields (2009, p. 69). This argument ascertains that following the business lack of diverse management, the ideas are limited and so is the scope and possibility of expansion. Conclusion In the events of the client in mention, setting up a sole proprietorship salon business would be ideal since, the requirements of her service and customer base is local and small, and requires a lot of supervision since in the nature of a salon, the clients are so sensitive on matters of the quality of service, taste and preference, and the latter would warrant the direct attention of the owner to facilitate such a personal contact and attention. Again, the nature of her business is not complex as to warrant such a complex chain of management as in a corporation. Her business idea is ideal again following the small capital requirements to start off as well as the limited risks affiliated with her line of practice since most of the work is done manually. There are also few challenges concerning business registration and given the owner’s nature of having to make all the vital decisions, the business would be flexible to adjustments that would see it fit the market’s demand thus a positive growth. All these advantages as well as the manageable risks involved, make the nature of her business venture quite enterprising and ideal to start. References AllBusiness.com, (2007). Advantages and Disadvantages of Sole Proprietorships, New York Times Print. Chinmoy Kumar, (n.d). What are the advantages and disadvantages of Sole Proprietor Form of Business. Crusto Mitchell F., (2009). Unconscious Classism: Entity Equality for Sole Proprietors, Loyola University New Orleans College of Law, University of Pennsylvania Journal of Constitutional Law, Vol. 11, No. 2. Henrekson Magnus & Johansson Dan, (2010) "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, vol. 35(2), pages 227-244. Larson Aaron, (2004). The Sole Proprietorship, Law Offices of Aaron Larson, Schreter, S., (2011). The Pros and Cons of Sole Proprietorship, FOX Business. Simon Parker, C., (2006). "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press. Simon Parker, C., (2009). "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press. Stam Erik and WennbergKarl (2009). The role of R&D in new firm growth; Jena economic research paper. Wiederman Adam J. (2013). The Rise of the Sole Proprietor, and the Future of Employment, my daily finance publication. Read More