Advantages of the Sole Proprietorship

Base of formation. There is less formality and fewer legal restrictions associated with establishing a sole proprietorship. It needs little or no governmental approval and is usually less expensive than a partnership or corporation.

Sole ownership of profits. The proprietor is not required to share profits with anyone.

Control and decision making vested in one owner. There are no co-owners or partners to consult. (Except possibly your spouse.)

Flexibility. Management is able to respond quickly to business needs in the form of day to day management decisions as governed by various laws and good sense.

Relative freedom from governmental control and special taxation.

Disadvantages of the Sole Proprietorship

Unlimited liability. The individual proprietor is responsible for the full amount of business debts which may exceed the proprietor'stotal investment. This liability extends to all the proprietor's assets, such as house and car. Additional problems of liability, such as physical loss or personal injury, may be lessened by obtaining proper insurance coverage.

Unstable business life. The enterprise may be crippled or terminated upon illness or death of the owner.

Less available capital, ordinarily, than in other types of business organizations.

Relative difficulty in obtaining long term financing.

Relatively limited viewpoint and experience. This is more often the case with one owner than with several.

NOTE: A small business owner might very well select the sole proprietorship to begin with. Later, if the owner succeds and feels the need, he or she can form a partnership or corporation.

The small business owner is required to wear many hats, but no one can be expected to be a lawyer, certified public accountant, marketing specialist, production engineer, environmental specialist, etc. Therefore, you should get the facts before making decisions. When necessary and if possible, you should also get professional counsel to help you avoid misunderstanding technical or legal issues and avoid making bad decisions and false starts that require backtracking and added expense. This is especially true when you are deciding what legal form to adopt.

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