More than 70 percent of U.S. businesses are owned and operated by sole proprietors. It is a simple business entity. A sole proprietorship is great for a business owned by one individual. With this form of business entity the business is you. You are entitled to all profits, debts, and losses.
A sole proprietorship is the easiest to set up.. You only need to get a business license or permit and register your business with your local government. You don’t need to hire an attorney to set up a sole proprietorship.
A sole proprietorship is great for freelancers, consultants and independent contractors. It is a simple business entity that works for most small businesses.
What are the advantages of being a sole proprietor?
It is easy to set up. It is simple to maintain. There are no shareholders, partners or board members. You control the entity on your own. You control the money and make all the decisions.
Taxes are fairly simple. You report tax on business income through your own personal tax return. It is a simple process.
Also, as a sole proprietor, you don’t need to worry about board meetings, keeping minutes, and other bureaucracy.
What are the disadvantages of being a sole proprietor?
A huge disadvantage of a sole proprietorship is the liability issue. Before you choose sole proprietorship, ask yourself this question:
Am I willing to risk my personal assets in case I get sued?
As a sole proprietor, your personal assets are at risk. It doesn’t shield you from business liabilities. As a sole proprietor there is no distinction between you and your business. This means that you are personally liable for damages caused by your business. Yes, it is risky to be a sole proprietor.
As a sole proprietor you are responsible for all business debts and losses. A corporation is much better at shielding you from your business. Before you start a business, consider the risks involved with a sole proprietorship.
It is also very difficult to get a business loan as a sole proprietor. Most financial institutions require that you incorporate before they lend you money.