A sole proprietorship is a private company set up on an individual basis. The owner, who is also the sole financier, has complete control of the business. It usually is run as a personal or family business where the ownership and management is the same.

The majority of the businesses in the UK exist as either sole proprietors and/or partnerships, while the limited liability companies are lesser in number. Being small, the turnover is also lower than a highly invested business and has a very few employees, if any. Among the 3.7 million (approximate) running business in the UK, the majority – around 62% – are size class zero businesses, i.e. they do not have any employees.

The advantages of a sole proprietorship are:

• Independence in control over the affairs of the company;

• No disclosure requirements of company documents and financial statements:

• Records do not require an audit at the end of each financial year;

• All profits can be withdrawn from the business whenever required;

• No complex legal requirements on formation or cessation of the business; and

• Greater tax benefits at lower earnings and lower National Insurance contributions (NIC).

The disadvantages are few but certainly have an impact on the well being of the business and its owner.

• The owner bears unlimited liability in the operation of the business and is solely responsible for the liability of the business, even if it means auctioning his personal assets not attached to the business, such as the house, car etc;

• Entitlement to fewer social security benefits such as unemployment benefit;
  The owner is him/herself responsible to raise finances for the business and the options available are inherently limited; and

• Selling off the business or passing it on is difficult than any other form of business.

The mainstream sole traders are in the services sector, including real estate agencies, restaurants and advertising companies, commission agents or brokers, and even independent contractors who are not on an employer’s payroll.

The registering process is easier than other forms of business although there are some legal requirements to be addressed. The following must be registered with the authorities.

• Check the validity of your proposed business name with the Business Names Act 1985 and the Company and Business Names Regulations 1981

• Register your proposed business name with the Companies House.

Your business name should be neither same nor close to the name of any other business. Any conflicts with a registered trademark can get you entangled in a legal action. Check all valid sources of information to make sure that your name does not cause trouble for you or anyone else. You are also required to register with the Inland Revenue (IR) within 90 days from the last day of the first month of operation. In case of avoidance or delay, a £100 fine is charged.