Sole Proprietorship

Many new business owners choose the sole proprietorship because it is the most straightforward form to initiate and provides the most control since only one person makes the decisions (for good or ill). Read this section and pay particular attention to the discussion on unlimited liability, as this is a significant drawback for sole proprietorships. It might be interesting to try the exercise at the end of the section and find a sole proprietor in your area.

KEY TAKEAWAYS

  • A sole proprietorship is a business owned by only one person.
  • It’s the most common form of ownership and accounts for about 72 percent of all U.S. businesses.

  • Advantages of a sole proprietorship include the following:

    1. Easy and inexpensive to form; few government regulations
    2. Complete control over your business
    3. Get all the profits earned by the business
    4. Don’t have to pay any special income taxes

  • Disadvantages of a sole proprietorship include the following:

    1. Have to supply all the different talents needed to make the business a success
    2. If you die, the business dissolves
    3. Have to rely on your own resources for financing
    4. If the company incurs a debt or suffers a catastrophe, you are personally liable (you have unlimited liability)