If you have ever set up a business on your own such as Cape Coral Towing, you probably know sole proprietorship is so common because they are very easy to set up. If you are operating an incorporated business and you are the only owner, you automatically qualify to be a sole proprietor. When it comes to this form of business ownership, there are both advantages and disadvantages of running a sole proprietorship. Not every business will be well suited for this form of incorporation, as we shall discuss.
What is a sole proprietorship
A sole proprietorship is a form of incorporated business that is owned by one person. Data from the IRS show at least 70 percent of small businesses are organized as a sole proprietorship. With a sole proprietorship, you are not required to file formation papers with the state, as you are required to do with limited liability companies. If you are running a business on your own and you have not registered it, then its sole proprietorship. However, you will still be required to obtain a business license and permits to comply with local laws.
Examples of some sole proprietorship businesses include; freelancing, consultancy, bookkeeping, virtual assistant, and home-based business owners.
Here are some advantages to why you may decide to settle on sole proprietorship.
The initial setup is fast
It is quick and very easy to set up a sole proprietorship. There is no need to register or incorporate your business with the state. All you need is to obtain business licenses and permits, with permits such as zoning permits, sales tax permits, etc., expected. It is all that your state or local government requires. Additionally, you will be required to operate your business under a trading name for legality.
Few legal requirements
There will be few ongoing legal requirements. After you have set up your shop, things remain pretty easy for sole proprietorship as from a paper standpoint. This is the reason freelancers, consultants, and those offering their professional skills find it easy to operate a sole proprietorship. Additionally, it is very easy to maintain such incorporation. You will have complete control over business decisions and priorities. There will be no form of conflict between partners, as that is one of the leading causes of business failure.
It has to be noted that a sole proprietorship comes with its fair share of disadvantages as well. You will face unlimited personal liability for business debts and lawsuits. This is one of the biggest drawbacks of a sole proprietorship. There is no clear distinction between a sole proprietor and their business. A sole proprietor is personally liable for their business debts and obligations. This means creditors and those claiming anything legal can go after their assets to get their money.
Another disadvantage is that sole proprietorship taxes are higher. This will also be dictated by the type of industry they decide to participate in. There is also a very high likelihood of burnout. Additionally, they also lack a clear succession plan.