The Sole Proprietor is the simplest form of business organization that is also the most popular due to its ease in establishing. However, the sole proprietorship affords the least protection from liabilities for the owner. Most small localized businesses are sole proprietorship such as beauticians, auto mechanics, carpenters, interior decorators, and landscapers. Sole proprietors generally exist as long as the owner has an interest in the business. This type of business organization lacks any true ability to sell or pass on to family members. The sole proprietor will also have difficulty finding financing as the owner is responsible for the debts of the business.
Advantages of the sole proprietor include:
- Simple to establish—usually the owner registers the business with local authorities such as the County Clerk.
- Owner control—as there is no one to tell the business owner what to do such as investors, sole proprietors have a great deal of control over their business.
- Tax advantages—sole proprietors pay taxes on their personal income and do not suffer from the double taxation that C-Corporations endure.
Disadvantages of the sole proprietor include:
- Unlimited personal liabilities—the owner is personally responsible for all debts of the business. Nobody starts a business with the expectation of failing, but most small business fail within the first years of operation. The sole proprietor can be left with staggering debts that he/she is personally liable to pay off.
- Difficult to transfer—a sole proprietorship exists only as long as the owner has an interest. They are not easily sold or inherited. Usually upon the sale of a sole proprietorship, the new owners establish a new business name.
- Difficult to obtain capital—as there is only one person responsible for the debts of the organization, financing can be difficult to find. Usually banks and venture capitalists want to see a different business structure before investing or loaning money.
