About Proprietorship

Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorship to be formed without the double taxation standards applicable to most corporations. The proprietorship can be named after the owner, or a fictitious name can be used to enhance the business' marketing.

The owner of a sole proprietorship is not required to file a separate business tax report. Instead, they will list business information and figures within their individual tax return. This can save additional costs on accounting and tax filing. The business will be taxed at the rates applied to personal income, not corporate tax rates.

Sole proprietorships can hire employees. This can lead to many of the benefits associated with job creation, such as tax breaks. Also, spouses of the business owner can be employed without having to be formally declared as an employee. Married couples can also start a sole proprietorship, though liability can only assumed by one individual.

Control over all business decisions remains in the hands of the owner. The owner can also fully transfer the sole proprietorship at any time as they deem necessary.

There is no legal distinction between the business and owner in a sole proprietorship, and therefore any assets owned by either are financially at risk. Debts, losses or lawsuits that can't be paid by the business will need to be covered by the owner even if that means using personal assets, including his home.

Sole proprietorships are unable to sell interest or shares in the business as a means of raising money. They also lack the clout other forms of business structure carry, making it more difficult to obtain loans and other funding resources.

Sole proprietors are in charge of every aspect of the business, including product and service development and delivery, marketing, accounting and customer service. Most sole proprietors are knowledgeable about their business product or service, but have limited knowledge or experience in the other areas. This lack of expertise can slow and even limit growth. Further, there is only so much a single person can accomplish. At some point, owners max out the amount of time they can spend on business activities and can't grow without adding more manpower to the business.

The success of most sole proprietorships is so closely tied to the owner that the business may be unable to survive the loss of the owner through illness or death. While sole proprietorships can be sold or transferred to heirs, they often struggle to survive because the new owners lack the knowledge to keep them going or the customers' loyalties were to the original owner and not the business.