Advantages and Disadvantages of Sole Proprietorship
Advantages of sole proprietorship
Ease of formation, great control, flexibility, no specific corporate records
Tax reporting for sole proprietorship
No separate tax return required, income and expenses flow through owner's personal tax return
Management duties in sole proprietorship
All responsibilities fall on the owner, including paperwork, payments, and marketing
Taxes in sole proprietorship
Business income and expenses included on personal tax return
Business loss reduces tax payment
Business loss of $3,000 reduces federal taxes by $450
Corporate restructuring for better business form
Changing the business structure to meet specific needs
Insurance to protect against damages
Errors or omissions insurance, disability insurance, and asset protection
Potential for personal liability in sole proprietorship
Exposure to lawsuits due to damages caused by the business
Excess expenses in start-up phase
Help offset taxes owed on other sources of income
Difficulty borrowing money as a sole proprietorship
Lending limited to personal assets, more financing options with separate entity
Challenges in selling a sole proprietorship
More difficult to sell compared to other business forms
Liability in sole proprietorship
Obligation to pay debts, breach of contract, or losses from damages
Financial sacrifices in sole proprietorship
Owner often last to get paid, health care and retirement payments may be postponed
Sole proprietor responsible for contracts, taxes, and misconduct
Owner personally responsible for legal liabilities
Unlimited liability in sole proprietorship
Personal assets can be used to pay business debts