Sole Proprietorship Essay

Sole Proprietorship- Sole proprietorships are the most common form of business in today’s world. These are your mom and pop shops built from the ground up and owned by one person. Sole proprietorships are unincorporated so any contract or legal agreement the company agrees to, it is actually the owner that is entering into the contract. Being a sole proprietor has obvious advantages in that it is very easy to create a sole proprietorship and and all profits made by the business belong to the business owner. All business decisions and actions are also controlled by the owner. However, there are key disadvantages of a sole proprietorship. The most obvious is that a sole proprietorship can only have one owner with no possibility of having a partner if the business ever expands. Characteristics:

Liability: While the owner of a sole proprietorship receives all profits from the business, they are also responsible for any debts the business may incur. Income Taxes: Since there is no legal difference between a person and his or her business, a sole proprietorship is taxed at the same rate as the business owner’s personal tax rate. This is another advantage of having a sole proprietorship because the business is not taxed twice unlike other business organizations. Longevity/ continuity: Another key disadvantage of a sole proprietorship is continuity. A sole proprietorship will exist until the owner dies, sells the business or closes down. Control: Sole Proprietorships are owned by one individual, so there isn’t anyone around to disagree with the decisions the owner makes.

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The owner has full control over everything the business does up to and including control of debt and cash flow. Profit retention: There is not a legal difference between a sole proprietorship and the owner. The business is taxed at the owner’s personal tax rate and is not subject any other taxation. This allows the business to retain more of the profits the business takes in. Location: Sole Proprietorships offer the easiest path to transferring to a different state. There are no requirements for separate tax filings, no state paperwork to fill out and few formalities to consider. Convenience or burden: A Sole proprietorship is the easiest form of business to create with little requirements to legally start up. If the owner wishes to run the businessusing a different name, then a business license must be applied for and obtained.