One of the most popular and most used structures for small businesses is a sole proprietorship. The reason that this is such a popular option is because of just how simple and easy it makes running a small business. Tax breaks and a stream lined process are just a couple of the great benefits that people who operate a business using a sole proprietorship enjoy. While there are many great advantages, there are some drawbacks to this type of business structure as well.
The Advantages of a Sole Proprietorship
1. Light Paperwork
Paperwork is a integral part of running any business efficiently. It can also be the biggest headache for businesses to deal with. However, with a sole proprietorship the paperwork is very minimal. This is one of the biggest reasons that people are drawn to this form of business structure.
2. One Person, All The Control
As an owner of a sole proprietorship there is only one person in charge of everything. All of the money made, any decisions or upgrades, and everything else involved with the business is completely dictated by the owner. This makes making changes to day to day operations very simple.
3. Simple Taxes
Large businesses are required to file taxes specifically for their business. As a sole proprietor you are not required to go through this headache. This is one of the only types of businesses that doesn’t have to file a separate tax return, instead, the owner simply files the business earnings with their personal taxes.
4. Quick Response
No one can come in an interfere with you business. This is another huge draw for sole proprietorship. If anything where to happen, or something needs to be changed or altered very quickly, there are no hoops to jump through to get the job done.
5. Easy Startup
A sole proprietorship is the fastest and simplest type of small business to register and start. The paperwork is very light and can be stream lined very quickly. This makes it an attractive option to anyone who wants to fast track their business.
The Disadvantages of a Sole Proprietorship
1. Fragile Businesses
One of the biggest problems with one person having complete rule over a business is the fact that things happen. If a person becomes ill, is incarcerated, or even dies it is highly unlikely that the business will transfer to anyone else and the entire company will be terminated.
2. A Lack of Credibility
People are more likely to bring their business to a large company rather than one that is registered as a sole proprietorship. It gives off the idea that the person has a lack of experience, credibility, and professionalism.
3. Complete Liability
Since there is only one person involved with the business, all liability falls on that person. This means that if anything where to happen, there is no one to blame but the owner of the business. If the business is sued, it is the sole proprietors responsibility, and only theirs, to handle it.
4. Difficult To Grow
In order for a business to grow, you typically have to bring more people on board. This becomes increasingly difficult with a sole proprietorship because it can only be ran by a single person.
5. Hard To Gain Capital
Another part of expanding a business is finding people who are interested in investing in your company. This is very difficult to do because of the lack of credibility and establishment that a sole proprietor business has.
Important Facts About Sole Proprietorship
