We'll try to explain What a Sole Proprietorship Business is. This kind of business is a great option for those who want to start their own business on their own without any huge investment and can handle all of the responsibilities.
A sole proprietor has complete control over the revenue and operations of their business. However, the sole proprietor is also personally responsible for all debts, lawsuits, and taxes their company accrues. So, if their business is sued, personal assets like their home, credit score, and savings are unprotected.
An overview of Sole Proprietorship Business
A Sole Proprietorship business sometimes referred to as a “one-man business” is a type of business that is started and run by one person with the sole motive of serving to meet a need and making a profit.
Sole Proprietorship is arguably one of the most popular business structures in Nigeria. It is a form of business that many Nigerians like Tailors, Carpenters, Technicians, Barbers, and Grocers start on a small-scale, because it is easy to establish, and registration is uncomplicated. Unlike other companies, it adheres to minimal compliances that make the business journey more seamless.
One person is responsible for handling the entire business affair. This person is the sole financier, controller, and manager of the business. The Business cannot sue nor be sued in its name because it is not distinct from the owner. Sole proprietors in Nigeria don't pay any corporate income tax, since they are not legal entities.
What is Sole Proprietorship Business?
A sole proprietorship can be a business structure that allows a business to continue its operations. It is a person who owns an entity and is responsible for paying its debts.
Here are some things to consider when deciding if a sole proprietorship is suitable for you.
- Are you looking to quickly set up your business with minimal paperwork and lower registration fees?
- Are you interested in having everything related to your business attached to you as an individual and under your control?
- Are you worried about investors, partners, or government regulations affecting your business?
If any of the above terms match your needs, you should consider working as a sole proprietorship.
The salient features of a sole proprietorship form of organization are as under:
- Single Ownership. A sole trading concern is owned by one individual. It is run entirely at his risk of loss. The sole trader provides both capital and management to the business.
- Personal Organization or Common Identity. A sole tradership concern has no separate legal entity independent of the owner. The owner and the business concern are one and the same. The owner owns everything the business owns and he owes everything the business owns.
- Capital. In a sole proprietorship, the capital is employed by the owner himself from his personal resources. He may also borrow money from his friends and relatives if he cannot depend solely on his personal resources.
- Unlimited Liability. The liability of the proprietor for the debts of the business is unlimited. The creditors have the right to recover their dues even from the personal property of the proprietor in case the business assets are not sufficient to pay their debts.
- One-Man Control. A sole proprietorship is a one-man show. The sole trader provides management to the business. He takes all the decisions, procures material resources, employs persons, and directs and controls the affairs of the enterprise. He is not required to consult anyone else in taking any decision.
- Profits and Losses. The surplus arising in the business of the sole trader entirely belongs to him and similarly, all the business losses and risks are to be borne by him alone.
- Risk Bearing: In this form of organization, the proprietor is the sole beneficiary of profits. If there is a loss, he alone has to bear it. Thus, the risks of the business are borne by the proprietor himself.
- No Special Legislation. A sole proprietorship is not governed by any special legislation. A partnership firm is governed by the Partnership Act, a joint stock company is governed by the Companies Act, and a co-operative society is by the Co-operative Societies Act. Any person who is competent to contract can start his business as a sole trader.
Following are some notable benefits offered by a Sole Proprietorship Business to its owners.
- A Unique Identity: Registration of your new business name makes it unique as nobody can bear such a business name subsequently.
- Certificate of Registration: After registering with CAC, You will get the Certificate Of Registration of Business Name and the Certified True Copy of the Application Form.
- It is Easier to Use: It is simpler to manage affairs when only one person is in charge. The person will make all the decisions and does not need to consider multiple opinions. In a proprietorship company, there is no need for approval or a board meeting.
- Seek Minimal Investment: Since the Sole Proprietorship model is a boon for low-cost business ideas, it is often chosen by small businesses like retail shop outlets, grocery retailers, and so on and so forth.
- The Only Beneficiary of the Profits: Among the big advantages of a sole proprietorship is a “not-skippable” benefit. It is that only sole proprietorships and single-person companies are eligible to be the sole beneficiaries of profits
- Bank Account Opening: The bank account for your business can bear your BUSINESS NAME, and these brands your business on a whole formal level.
- Tax Benefit: Sole proprietors in Nigeria don't pay any corporate income tax, since they are not legal entities. Instead, they only pay the PIT - Personal Income Tax (salary from employment or earnings as a sole trader).
- Incentives: When you register your business name, you stand a chance of growing your business through the various business incentives extended to Micro, Small, and Medium Enterprises (MSMEs) by the Federal Government.
- Ease: It is cheaper to register a Business Name for your new business than to incorporate a company. When a new business name is registered, it is not required to have formal meetings and rigid corporate governance meetings like companies that are incorporated.
- Complete Authority: Sole proprietorship business has complete privacy and does not report to anyone, submit an annual report, or publish audited statements for anybody like the Limited liability companies do.
- Business Trip to Other Country: Another great benefit of business registration is that you can easily obtain a visa and travel to any country for business purposes.
To complete the Registration of Your Sole-Proprietorship Firm in Nigeria, you'll have to provide the following details upon Submission;
- Proposed Name of the Business (2 Names).
- The objectives and nature of business.
- Address of the Business (Can also be a residential Address).
- Particulars of the Proprietor - Such as; Name, occupation, residential address, email address, phone number, and means of identification (National Identification Card, Data Page of International Passport, Driver’s Licence, or Voter’s Card).
A sole proprietorship form of business might seem very similar to one-person companies because they both involve a single person owning the business, but they actually exist some differences between them.
The main difference between the two is the nature of the liabilities they carry. Since an OPC is a separate legal entity distinguished from its promoter, it has its own assets and liabilities. The promoter is not personally liable to repay the debts of the company.
On the other hand, sole proprietorships and their proprietors are the same persons. So, the law allows the attachment and sale of the promoter’s own assets in case of non-fulfillment of the business's liabilities.
How Does a Sole Proprietorship Differ From a Partnership?
A sole proprietorship is a business structure in which an individual, typically a person who owns the business, is responsible for its operations and profits. This differs from a partnership, in which two or more people share ownership and responsibility for the business’ success. While there are pros and cons to both structures, sole proprietorships tend to have certain advantages over partnerships.
One major advantage of sole proprietorships is that they are easier to start than partnerships. Because the owner is responsible for everything from the business's financial stability to its day-to-day operations, there is less bureaucracy and paperwork involved in running a sole proprietorship than in a partnership. In addition, sole proprietorships are often less expensive to operate than partnerships because the owner is not liable for any of the other partners’ debts.
The sole proprietorship business form is appropriate for numerous activities which range from local transportation, consultancy services, and retail business. The proprietorship business formation shall be appropriate for businesses in its primary stage and for those proprietors having less capital investment and a small group of employees.
Based on the features of the sole proprietorship business, the most suitable businesses kinds are as given below:
- Activities Involved in Retail Trading
The sole proprietorship business involving retail trading activities such as household goods, electric goods, grocery selling, general store, merchandise, bakery, etc. can be done with a very negligible risk by the sole proprietor. The capitals required for initial investment are also very minimal which helps the sole proprietor in choosing this business.
- Catering Business
The food stalls or the Catering business does not necessitate a corporate structure to be formed. Only a few workers will do for the effortless and proper functioning of such a business. These businesses work under the direct control of one person and are a good option for proprietorship businesses.
- Software Consultancy
This business can be managed with medium capital flow and the service in it is a basic software system requirement. Thus, a sole proprietorship business in software consultancy can be easily handled by a single person.
- Tax and Legal Consultancy
Lawyers, Chartered Accountants, and Company Secretaries often choose proprietorship businesses in the service industry. This business requires very a small amount of capital and the concerned professional is directly accountable for his actions irrespective of the business structure.
- Learning Assistance (Tutor)
Learning assistance or tutoring services are provided by the sole proprietors at home or by renting a suitable commercial place. With the help of only a few employees or the sole proprietor on his own can choose this particular sole proprietor business and keep the whole sum of profit in his pocket.
- Freelance Writers
Freelance writers work independently on a contractual basis that does not requires much capital and can work from home. This activity at the starting stage does not necessitate a planned form of business with compliance fulfillment.
- Clinic & Healthcare
Most clinics and healthcare entities start as sole proprietorship businesses in their starting stage. The sole proprietors need to look for stability in starting their business first before taking it into a structured entity.
- Repair & maintenance services
The repair and maintenance of automobiles, household appliances, electronic machines, etc. are frequently provided at local shops, consumer places,s or garages. And these can be the best suitable sole proprietorship business.
- Local Transportation Services
Transport services like autos, e-rickshaw, or minibusses require minimal capital and just a few employees. A person can individually operate dealing with the passengers and can best serve the interest of a sole proprietorship business.
Formation of Sole Proprietorship Firm
It is beneficial to avail the support of an expert firm that can assure seamless delivery of the same without much hassle. That is what SplashDict is all about.
1. Make Payment Online
Add product to cart, then proceed to complete secured online payment.
2. Fill up the Application Form
Come up with a name for your business and answer a few questions. Our easy online form can be completed in just 5 minutes or less.
3. Our Executive will process the Application
Based on the information you provide, We will process and file the documents.
4. Receive your documents
Once your registration documents have been approved by the Federal Ministry, you will receive your completed business entity package by e-mail/mail.
How Long does it take for Sole Proprietorship Registration in Nigeria?
- Name Search: 6 - 24 hours from submission.
- Grant of Certificate of Registration: 24 -96 Hours from filing.
- Total time: Approximately 2 - 7 days.
What is a Certificate of Business Name Registration?
The Business Name is entered into the Register of Business Names as contained in Section 816 of CAMA and a certificate of registration is issued once it has been approved. The issued certificate comes with a unique identification number known as the Business Name Number and its certificate must be displayed prominently at the principal place of business.
It is worth noting that the benefits of registering a business name are not limited to Nigerians; foreigners are also granted similar advantages to establish a sole proprietorship or partnership in Nigeria, provided they meet the requirements set out in the existing laws on expatriate quota.
If you are still not sure which one to pick for your business, feel free to reach out to us and our experts will guide you in making the right decision.
SplashDict is equipped with accredited experts and the necessary resources to assist you to complete the sole proprietorship business registration in Nigeria.
You will get;
- Instant Delivery of Digital Copies of all incorporation documents once approved (Certificate Of registration, Status Report, and Certified True Copy of Application Form).
- FIRS' Tax Identification Number Inclusive.
- Bank Account Opening support.
- Priority Customer Support.
- 3 to 14 Business Days Delivery.