Free Essay: Advantages and Disadvantages of Sole Proprietorship
Sole proprietorship is a business structure where an individual or a single firm is involved in running a number of business ventures. For example, the business can be involved in freelancing, consultancy as well as other kinds of contracting businesses. Sole proprietorship can be an effective way to run the right kind of business ventures. These businesses are run by private individuals and not by the government. However, there are some advantages and disadvantages of sole proprietorship and we are going to look at them in this essay.
One of the main advantages of sole proprietorship is that setting up business as a sole proprietor requires less paperwork. There is a lot of bureaucracy associated with setting up business in any given state. However, when setting up a business under the structure of sole proprietorship, you will only deal with few legal formalities.
When setting up a business under sole proprietorship you will not have to deal with so many regulations. The state as well as the federal government does not have very many strict rules that apply to sole proprietors. For example if you are setting up an eatery, there are so many licenses you will need to acquire by law after undergoing various inspections. This would not be the case if you are setting up as a sole proprietor.
Another major advantage of running business as a sole proprietor is the fact that you have simpler tax obligations to deal with. You do not have to pay separate taxes for the business. There are different laws about this matter depending on the region of the world where you are setting up business but all of them favor the sole proprietor. The sole proprietor does not necessarily have to come up with separate tax returns.
Sole proprietor have the disadvantage of having unlimited liability. In case the business fails they will go down with it literary. The sole proprietor therefore has to put in place all sorts of insurance to ensure that in case the business faces hard times, their personal assets will not in turn be taken away.
The sole proprietor will also face a challenge when fund raising for capital to set up business. Financial lending institutions have a bias for other business structures. The sole proprietor may be able to access financial help but it may not be adequate to last them as long as far as they would have hoped for.
When people are looking for companies to do business with, they hold professionalism in very high regard. Businesses run as sole proprietorship appear to be less professional in comparison to corporations and other forms of organization. People who understand business well may not find this to be a major issue as they gauge companies based on their results.
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