Just like any form of business, a sole proprietorship has advantages and disadvantages. Those interested in sole proprietorship should conduct a careful analysis of the needs, risks, and ambitions of the venture to make a proper determination as to which type of business entity is best.
What Is a Sole Proprietorship?
A sole proprietorship is a business entity with a single owner. That implies that the owner bears direct responsibility for all elements of the business and is fully accountable for all finances, including debts, loans, and losses. The business is also taxed as an extension of the owner.
Personal Liability
Since there is no separation between the owner and the business, the owner of a sole proprietorship holds unlimited liability for the business, including full responsibility for all of the debts and/or losses that result from business operations. In turn, the owner is entitled to all of the profits generated by doing business.
Setting Up a Sole Proprietorship is Easy
Registration of a sole proprietorship is simple. The process involves the selection of a business name, and filing a “doing business as” (DBA) with the local tax authorities. A sole proprietorship is not considered a “legal entity” since there is no distinction between the business and the owner. The business and the owner are considered to be one and the same.
Hiring Employees
As a sole proprietor, the owner can hire employees and independent contractors, and may ask the hired help to make decisions that affect the way the business is run.
Control
Another key benefit of a sole proprietorship is that when forming the business (and throughout the life of the organization) the owner has total rights to the conduct of the brand. This means that the owner does not have to concern themselves with the intent of partners, a board of directors, or virtually anyone else who might have an interest in the enterprise. The operations and maintenance of the business is entirely the result of the business owner’s right.
Financing a Sole Proprietorship
The owner of a sole proprietorship has a number of options available when it comes to obtaining business financing. This includes loans from the U.S. Small Business Administration (SBA), which has an inherent interest in helping small businesses succeed. The SBA is also able to facilitate alternative means of financing, such as government grants and stipends. In these cases, however, it’s important that sole proprietors understand that certain criterion must be met such as business size, income standards, employee diversity, among other variables. Local government bodies and economic development agencies also give grants based on a business’s ability to stimulate the local economy in which it exists.
