A sole proprietorship is an unincorporated business owned by one person — the sole proprietor. This is the oldest, simplest and most common form of organization for a company. As the business owner, you own all assets, earnings, and profits. But you also hold all the responsibilities (including legal and debt), obligations and liabilities.
Let’s take a look at the perks and snags of the sole proprietorship.
Perks of a sole proprietorship
- The least expensive form of ownership; low start-up costs.
- Most freedom from regulation.
- Simple to start and dissolve.
- There are tax advantages for the owner.
- The business owner has complete control over the company and decisions.
- Smallest amount of working capital required.
- Owner has complete control over the income generated by the business.
- Owner has complete access to profits.
- Easiest to exit.
Snags of a sole proprietorship
- The business owner is legally responsible for all debts.
- Unlimited liability (not separate by law; can be personally liable for all debts even if it means paying debts with your personal assets).
- Business can’t continue in absence of owner.
- Harder to raise funds from personal savings or loans.
- Higher personal tax rate.
- It’s often harder to find high quality employees.
- Limited resources and opportunities for growth.
- Some employee benefits are not deductible from business income.