When you will be putting up a business, you will be tasked to choose from three main structures. These are sole proprietorship, partnership and corporation. Among the three, sole proprietorship is considered the simplest. This can be formed by anyone and sometimes, it does not even require registration. Most business start-ups use this structure. This article will discuss some of the advantages and disadvantages of using sole proprietorship as a business structure.
1. You are given the power to do anything you want with your business. Since you are the sole owner of your business, you have the say to do anything you want with it. You do not have to banter with your business partners when you want an idea to push through. You are given free rein when it comes to your business operations and control over your finances.
2. Tax preparation is simpler. When it comes to corporations, tax preparations are more complex compared to sole proprietorship. Since you are considered self-employed when you have a sole proprietorship business, all you will need to file for is your personal income tax. This will already serve as the tax for your business.
3. Handling finances is easy. Large corporations require that you pay for numerous employees because you need them for large business operations. Handling money with sole proprietorship is simpler because you only need to pay yourself, manage small inventory and a small number of employees. You do not need to have a complex financial system to manage all of these and will only require the help of an accountant when you are about to file for your taxes.
4. You do not need a lot of money to start out. Partnership and corporations require the help of an attorney before they could set up business. This is needed because there are certain forms to fill and some rules need to be legalized pertaining to the rights and duties of each partner. Legal fees can be expensive. With sole proprietorship, this problem is eliminated. You only need to worry about filing for a business permit and the money needed to fund your inventory.
1. You become personally liable to losses. With corporations, your personal assets are protected should your business fold due to unreliable economic conditions. The same cannot be said about sole proprietorships. If you incurred a lot of debt and your business needs to close down, your creditors will have a claim on your personal property. Your assets will be liquidated to pay your debts.
2. Limited ideas. You may be able to think and act on your own but you are only limiting the growth of your business according to what you know. In comparison, partners can pitch in ideas to come up with better plans. You do not have people whom you can brainstorm with and will have to rely on your own ideas and this is sometimes not sufficient to propel your business forward.
3. Limited capital. Since you will be relying on your own money, you may be crippling your business the advantage of expansion. Even if your business is doing well today, you still need money to put up another branch. Corporations and partnerships are more flexible when it comes to raising money because these are more attractive to creditors and investors.
4. Limited life. When the owner of the business dies, this can be the start of the demise of the business. While sole proprietorships can be inherited by beneficiaries, the owner may carry with him the expertise needed to run the business. Knowledge is needed to keep the customers happy and if you cannot answer their queries coming through your phone system like hosted PBX, they could easily take their business somewhere else.
Alicia Randall is a freelance writer that is new in this field. She is adept in creating articles within the technology and business niche. She aims to give out wonderful information to aspiring entrepreneurs and digital marketers. She has contributed to RingCentral and aspires to contribute more to other businesses. You can follow Alicia Randall on twitter.
If you enjoyed this article and you want to keep learning then please subscribe to My Feed for all the lastest help making you money online!
This site runs on the Thesis WordPress Theme
If you’re someone who doesn’t understand a lot of PHP, HTML, or CSS, Thesis will give you a ton of functionality without having to alter any code. For the advanced, Thesis has incredible customization possibilities via extensive hooks and filters. And with so many design options, you can use the template over and over and never have it look like the same site.
If you’re more familiar with how websites work, you can use the fantastic Thesis User’s Guide and world-class support forums to make more professional customizations than you ever thought possible. The theme is not only highly customizable, but it allows me to build sites with a much more targeted focus on monetization than ever before. You can find out more about Thesis below: