A sole proprietorship is a type of business structure where only one owner holds legal rights to the assets and profits obtained from the business. The owner is also responsible for paying taxes and filing required forms and other documents with the government.
Sole proprietorships are common in many businesses. They are easier to start and operate, however, they often don’t offer much protection against lawsuits or unpaid creditors. Below, we take a look at the main advantages of a sole proprietorship.
Advantages of a Sole Proprietorship
1. Easy To Start
A sole proprietorship requires very little paperwork and no licenses. It’s usually possible to open a sole proprietor account as soon as you have $25 in deposits. You may be able to create an LLC later on if you feel that it will benefit your particular business. However, most people who want to establish a business quickly find that a sole proprietorship works well enough.
2. Low Fees
One big advantage of a sole proprietorship over most other types of business structures is the low cost. Sole proprietors pay nothing to form their own business, and there are few additional costs when starting a sole proprietorship.
For example, a sole proprietor can use his personal credit card to make small purchases without incurring fees. Additionally, he does not need to buy insurance since the company itself provides limited liability coverage. Of course, forming a new corporation means that the entrepreneur must either purchase an insurance (at high rates) or accept full risk himself. Either way, the added costs of corporate governance may outweigh the benefits.
3. Limited Liability protection
Perhaps the biggest reason why entrepreneurs should consider choosing a sole proprietorship instead of an LLC is the limited liability protection offered by each. A sole proprietor cannot hold any shares or stock in a business, so he has no say in how the company is run or how it operates. In addition, as mentioned earlier, sole proprietors do not file tax returns.
Thus, if they were sued by a client, creditor, or employee, s/he would not have access to the IRS records showing that person’s income and expenses. This could leave him exposed to significant financial loss. If the lawsuit was successful, the plaintiff could even recover damages from the entrepreneur personally rather than just the company or LLC.
4. Fast Business Setup
Perhaps the largest disadvantage of choosing a sole proprietorship is that it takes longer to set up After that, you will be ready to begin selling products and services.
5. No Taxes
Unlike corporations, which face both federal and state taxes, individual sole proprietors only pay federal taxes. That’s great for those who prefer simplicity to complexity. As long as you keep careful track of every dollar that goes into your pocket, you won’t owe anyone else anything for what you earn.
6. Better Protection From Third Party Creditors
Corporate owners may struggle with third-party debts like medical bills or student loans. Unlike companies, individuals do not have access to unlimited funds. So if someone wants to sue them for money, chances are s/he will not be able to attach assets that belong to the individual. An individual can
it does register an LLC. There is less flexibility available in terms of setting ownership rules, creating corporate minutes, and incorporating paperwork. When all is said and done, you still have to wait 30 days before you can start operating the business. Nevertheless, this period typically lasts less than 5 hours.