Pros and Cons of Sole Proprietorship

There are many ways that a person can go into business for themselves. One of the easiest is a type of business that is called a sole proprietorship. There is virtually no paperwork that is required to start this type of business. As long as you have a product or service to sell, then you can obtain licenses that are required to start selling and get to work. There are some advantages to forming a sole proprietorship and some disadvantages to think about, so be sure to consider these points before finalizing your business structure.

The Pros of a Sole Proprietorship

1. You may not need to notify anyone that you’re beginning a business.
If you have a digital business opportunity, such as freelance work, then you can just get to work. Many digital businesses that don’t solicit for local customers aren’t required to have an operational license because they are being viewed as independent contractors.

2. You don’t have to file separate tax returns for your business.
Because the view of the sole proprietor is as an independent operator, filing taxes is easier every year because there isn’t two different tax returns that must be filed. Business expenses, deductions, and income are all reported on an expanded tax return document.

3. Your business can still be scalable.
You don’t have to just work by yourself if you’re an independent contractor. You can hire employees, other independent contractors, and grow your business as large as you want it to be without changing your structure. You will need a tax ID if you hire employees, however, so keep that in mind as you contemplate growth.

The Cons of a Sole Proprietorship

1. Your business income and personal income get mixed together into one pot.
In this business structure, all of your income is considered to come from one source. This means that all of your personal assets are placed at risk if you happen to lose a judgment for some reason. Because of this, larger businesses may wish to look at other business structures.

2. Insurance and credit may be more difficult to obtain.
If you start a business that has more structure to it, then that business has its own credit profile. Under a sole proprietorship, the credit profile of the business is your personal credit profile. If you have a lower than average credit score, then it may become difficult to obtain capital funding that you may need.

3. Everything winds up running through you.
In this business structure, there aren’t any other officers who can help to run the business. In the end, you can delegate business decisions as you see fit, but ultimately it is you who will be responsible for the conduct of all employees, the value of the work completed, and your overall business presence.

A sole proprietorship is a great way to get into the business world if you have a hobby that you’re trying to turn into a business. If you want something bigger, then take a look at these pros and cons to determine if a sole proprietorship is right for you.

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