The Advantages and Disadvantages of a Sole Proprietorship

A sole proprietorship is a company owned by one person, who may also be the only employee. The owner receives all of the profits from the business and also incurs all of the losses. A sole proprietor can be formed almost instantly, as long as they meet local regulations in their state, county and /or town. This business entity is the least costly form of business to set up, and the least complicated way to start.Because of its simplicity, it is probably the most popular way to set up a new business by an individual entrepreneur. Income earned is tied to the production of one individual. Taxes are paid at your personal tax rate.

Advantages

Easy to start.

Less government regulation.

No additional taxes are levied on business income, unlike corporations.

All profits go to the sole proprietor.

The sole proprietor makes all of the decisions without having to consult others.

No attorney is required for set up.

Disadvantages

Unlimited personal legal liability from business-related lawsuits. This means that the business owner can be sued and have to sell all of their business and personal assets to satisfy a law suit.

Difficult for an individual owner to raise money.

The rate of failure is high, usually due to lack of business management expertise, financing and a solid business plan.

The sole proprietor has to perform all of the functions necessary to make the business operate on a day-to-day basis. This can include marketing, sales, record-keeping, strategic planning, networking and more.

When trying to decide if a sole proprietorship is the right business entity for you, there is a lot to consider. I strongly suggest that you conduct research with your county, secretary of state and/or your economic development department. These agencies will give you the details that you need for registering your business, the fees associated with this form of business. Also the Small Business Administration (SBA) can give you some insight on the nuances associated with a sole proprietorship. The SBA also conducts courses that help sole proprietors set up, manage and get financing for their businesses.

These classes are often offered through SBA field or regional offices, Small Business Development Centers, community colleges or through civic organization, typically set up in local communities. The SBA has several means through which they provide instructors. Some instructors are consultants that are current business experts in their fields. They also rely on a group of retired executives to train business owners. This group is called SCORE. This group also offers consultation to individuals starting businesses.

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