When you first get your start in the business world, you may not want to spend too much time and money forming a legal entity. In this case, there’s a good chance you will conduct business as a sole proprietorship.
Here are some of the many benefits of a sole proprietorship arrangement:
- You have complete control over every aspect of the business
- The sale of a business only needs to be approved by the sole proprietor
- There are no corporate tax payments (or the forms that go along with these)
- You don’t have to spend nearly as much money forming a sole proprietorship (as compared to an LLC or S-corp, for example)
- A small number of formal business requirements
With so many benefits of a sole proprietorship, many people assume that this is the best way to run their business.
You don’t want to go down this path until you first understand the potential pitfalls. For instance, a sole proprietorship can be held personally liable for any obligations or debts of the business.
Also, when you run your company as a sole proprietorship, you and you alone are fully responsible for everything that happens.
Finally, investors don’t typically get involved with sole proprietorships, so this eliminates one of the many forms of funding to consider.
There is a lot to think about when starting a business. While you have the right to choose the business formation that makes the most sense for you at the present time, you need to know the pros and cons before making a final decision.
Source: All Business, “Advantages and Disadvantages of Sole Proprietorships,” accessed Aug. 23, 2017