Examining the Advantages and Disadvantages of a Sole Proprietorship

 Posted on August 08,2017 in Business Structure

In a sole proprietorship, an individual proprietor (the owner), manages and runs their business. They receive all income for the company, but they are also responsible for its debts, liabilities, and tax obligations. Learn more about this widely used business structure, including its advantages and disadvantages, and how an attorney can assist with the setup.

Advantages of a Sole Proprietorship

Of all the business structures that one can choose, sole proprietorships tend to be the most affordable and easiest to start. Paperwork and other legal items are generally less extensive, and the sole proprietor is only required to comply with state and federal tax laws, zoning laws, and other local regulations, such as licensing laws.

There are also few formal business requirements (except those specific to the industry they operate in), and because the owner has full control over the decision-making power within their business, they may sell or transfer it to another owner or entity at any time they deem necessary. The owner may also change the structure of the business at any time, but it is important to recognize that obligations before the switch may still fall on the owner of the company.

Disadvantages of a Sole Proprietorship

Unlike other business structures, sole proprietorships are not protected from liabilities and bad debts incurred by their company. Instead, they may be held personally liable. In extreme situations, this can cause the business and the owner to simultaneously go bankrupt. Furthermore, the sole proprietor is required to pay all federal taxes on any income earned, and they may be penalized if they do not meet their obligation.

Another major disadvantage is that few investors are willing to put money or energy into a sole proprietorship; quite simply, there just is not enough protection for the investor. As such, sole proprietor business owners typically rely on personal loans and assets to finance the company. If the business fails, this can result in a serious financial loss for the owner of a sole proprietorship.

Contact Our DuPage County Business Law Attorneys

Although sole proprietorships are relatively simple and straightforward in terms of setup, there are some obstacles that business owners should be aware of before moving forward. Stock, Carlson & Asso. LLC can help ensure that these matters are understood by business owners and that they receive personalized attention to fit their needs. Learn more about how we can assist with your business set-up by scheduling a personalized consultation with our DuPage County business law attorneys. Call our offices at 630-665-2500 today.

Source:

http://www.nytimes.com/allbusiness/AB4113314_primary.html