Sole Proprietorship

Sole Proprietorship is the easiest of forms of business ownership.

Sole proprietorship is the easiest and least costly way of starting a business. The vast majority of small businesses start out as sole proprietorships.

A sole proprietorship can be formed by just starting a business by finding a location and opening the door for business. There are likely to be fees to starting a business name registration, a fictitious name certificate and other necessary licenses.

Attorney's fees for starting a business will be less than the other business forms because less preparation of documents is required and the owner has absolute authority over all business decisions. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business.

A sole proprietor owns all the assets of the business and the profits generated by it. A sole proprietor also assumes complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, a sole proprietor is one in the same with the business.

Advantages of a Sole Proprietorship:

• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
• Sole proprietors receive all income generated by the business to keep or reinvest.
• Profits from the business flow-through directly to the owner's personal tax return.
• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship:

• Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).