Sole Proprietorship - Summary Relating to Sole Prop. PDF

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Summary

Summary Relating to Sole Prop....

Description

Sole Proprietorship Introduction • • • • • • •

a natural person can trade for his/her own account personally involved in undertaking estate is involved oldest and most basic form of enterprise frequently used no limits in respect of capital, turnover, or total value of assets trader could carry on any type of business

Elements • • • • •

intention of trader must be to gain some advantage normally monetary – profit solely involved and no prior agreement necessary trader must not be subject to any legal disability such as minority if a minor – must be emancipated

Legal nature • • • • • •

customary to distinguish between ‘personal entity’ and ‘business entity’ of trader however, trader only has one estate accounting purposes, each ‘entity’ will have its own set of books and evaluated separately no separation between ‘business assets and liabilities’ and ‘personal assets and liabilities sole owner of all assets of undertaking free to utilise and manage assets as s/he thinks fit, but subject to public policy and legal rules

• Formation • certain trades – trading licences required • certain qualifications – e.g. pharmacist requires academic qualifications and admission to relevant Statutory Controlling Body • use any name for enterprise • often trade under own name, but free to select other name • provided not contrary to public policy or provisions of some act • guard against delict of ‘passing-off’ – i.e. culpably trades under name identical or closely resembles name of another enterprise • name could be descriptive of type of activity or a word or group of words or letters or invented words Administration • absolute control of enterprise • not report to anyone else • can delegate functions but s/he is final manager of enterprise • internally and externally s/he has sole control

• • • •

does not need prior authority of anyone else to bind enterprise contractually legally – no need for any form of administration business – some form of administration required no special provision iro disclosure or accounting records (except SARS may require that proper books be kept)

• Financial aspects • any enterprise needs capital – sole trader must provide this • allocating certain of his assets to be used by enterprise (only an allocation in terms of accounting) • legally – assets remain part of his/her personal estate • liability iro creditors of enterprise not limited to amount of capital s/he provided • remains liable to creditors with full estate • if no profit – accrues to personal estate of trader • if loss – loss will be in trader’s estate • creditworthiness of trader not limited to financial position of enterprise, but take whole estate of trader into account • Termination • at any time • insolvent or die – terminated automatically Sequestration • because no separation between business entity and personal entity – failure of business will have impact on trader’s personal financial position • if losses in enterprise result in total liabilities (business and personal) exceeding total assets (business and personal) – he will then be insolvent and will be sequestrated Assessment • ideal where trader is personally involved in undertaking and where s/he is selling his/her personal skills • ideal where the capital needs of business are so limited that the trader can furnish them without any problem • however not suitable where: • very large amounts of capital involved • managerial skills necessary but trader lacks these skills • advisable to limit liability of entrepreneur because of risk inherent in type of undertaking or personal situation of entrepreneur • perpetual existence of undertaking desirable • if trader wishes to dispose of undertaking – may need to transfer assets to person acquiring them which may involve numerous formalities...