In my last article, I wrote a short article about starting a business. As I promised in that article, today I am writing about one of the forms of business: Sole Proprietorships.
A Sole Proprietorship is a form of business wherein the owner is the business. It is considered perhaps the simplest form of business. In this form of business, the business is not separate from the owner.
The Sole Proprietorship can be any type of business. For instance, it could be a music recording studio, a grocery store, a mechanic shop, a bakery, or even a child daycare. It doesn’t matter what type of business you choose, you can be the sole owner.
Now there are advantages and disadvantages of owning this type of business. These are not an exhaustive list by any means. But some of the advantages include:
- The owner owns the whole business
- The owner gets all the profits
- It is considered easiest to start
- It typically costs less to start than any other form of business
- It doesn’t require a lot of documents to be filed, although a license might be needed depending on the state you’re in
- All the decisions are the owner’s prerogative and the owner has the right to sell the business at any time
Some of the disadvantages include:
- The owner assumes all the risk
- It has unlimited liability
- It has unlimited legal responsibility
- Any lawsuits affect the owner’s personal assets
- When the owner dies, the business dissolves
- When it comes to raising capital, the owner is usually limited to personal funds and loans that can be obtained
Finally, as far as tax considerations, the owner pays personal income taxes on the profits. The owner can also set up certain retirement accounts that are tax exempt until the funds are drawn. An owner should really be sure to consult a professional accountant to take care of tax issues. For more in debt information about starting businesses, see the source below.
The source for the information in this article is my textbook titled “The Legal Environment of Business: Text and Cases” Eighth Edition by Frank B. Cross and Rodger LeRoy Miller. It not only talks about the various forms of businesses, but the book is an excellent source for learning about legal ramifications of business decisions and operations.
Look forward to the next article on forming your business: Franchises.