6 Advantages and Disadvantages of Sole Proprietorship

There are countless ways to structure and run a business. One of the simplest forms of owning and operating a business is through a sole proprietorship. Sole proprietorship provide incredible control but comes at a great deal of risk. Here, the advantages and disadvantages of having a sole proprietorship is looked at.

List of Pros of Sole Proprietorship

1. Easy to Form
Sole proprietorship compared to other business types are incredibly easy to form. With few restrictions all you have to do is to file with your local county clerk.

2. Have Control of Decision Making
In addition to the ease in which you can form it, you can directly control the profit created through what you are doing. You also have infinite power over decisions as you are solely responsible. All of this leads to a freedom and flexibility that is not seen in any other kind of business. Individuals prefer a sole proprietorship because of these reasons and the control provided.

3. Taxes Are Simpler
This simplicity even means simpler taxes. You will not need to prepare a balance sheet for your business, or even do separate tax returns.

List of Cons of Sole Proprietorship

1. Solely Liable for the Company
Sole proprietorship provides near unlimited freedom from a business standpoint. This freedom however also extends to unlimited liability. Being the sole proprietor of your business, you run the risk of being completely liable for the company. This liability extends to everything you own, meaning that if your business owes money, then you may lose everything. Because the sole proprietorship is dependent on the owner, then the business lives and dies with the person in charge.

2. Considered High Risk
This can lead to a halt to the business if something happens to you. Being that the business is run entirely by you, this also means that there will be a challenge raising funds and capital. Individuals will not want to invest in something that has such high risk and little security.

3. Only Answer to One Person
As a final note, unlimited freedom from the owner to steer the course of the business can be beneficial. However, time after time in the business world has taught us that a number of different ideas makes a stronger business. This is cut out of the conversation however when you have a sole person in charge with little or no way to engage if the owner does not want to allow others into the process.

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