This is our second post in our series on Types of Business Entities. In it, we'll be discussing the advantages and disadvantages of Sole Proprietorships.
"A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business."
Examples of sole proprietors include small businesses such as, a local grocery store, a local clothes store, an artist, freelance writer, IT consultant, freelance graphic designer, etc.
In our first blog post of this series, we mentioned that there are certain areas to consider when deciding on the best structure for a business. In this post we'll take a look at these areas again and discuss the advantages and disadvantages of sole proprietorships.
Areas to Consider:
- Establishing a Business Name: It can operate under its owner's name, or a made up trade name.
- Business registration: Acquiring the appropriate license (s) or permit(s) and registering with the local government is all that's necessary.
- Ongoing Administration: There aren't reporting requirements, like that of a corporation, to weigh down on an owner's management efforts.
- Sole proprietorships are available for individual owners (or married couples).
- Owners may want to consider other entity types for tax advantages.
- Some owners may prefer their simpler tax filing requirements with this business type. As well as the convenience of having less documentation requirements.
- Many owners may prefer complete control over their company.
- An owner should consider another entity type if they don't have enough wealth to start the company and do not want to take on the extra debt necessary to fund it.
- Owners should keep in mind that their personal assets are vulnerable to the risks involved in their company.
Stay tuned for our next blog post of this series where we will be discussing the advantages and disadvantages of partnerships.