Forms of Business Ownership

Sole proprietorships have several advantages that make them popular:

• Easy and inexpensive to form. As Jeremy Shepherd discovered, sole proprietorships have few legal requirements (local licenses and permits) and are not expensive to form, making them the business organization of choice for many small companies and start-ups.
• Profits all go to the owner. The owner of a sole proprietorship obtains the start-up funds and gets all the profits earned by the business. The more efficiently the firm operates, the higher the company's profitability.
• Direct control of the business. All business decisions are made by the sole proprietorship owner without having to consult anyone else.
• Freedom from government regulation. Sole proprietorships have more freedom than other forms of business with respect to government controls.
• No special taxation. Sole proprietorships do not pay special franchise or corporate taxes. Profits are taxed as personal income as reported on the owner's individual tax return.
• Ease of dissolution. With no co-owners or partners, the sole proprietor can sell the business or close the doors at any time, making this form of business organization an ideal way to test a new business idea.