(2) Advantages and Disadvantages of Sole Proprietorship

Sole proprietorships are closely tied to the owner's life, and the business may cease to exist in the event of the owner's death, incapacity, or retirement. Without a clear succession plan or provisions for business continuity, the future of the business may be uncertain.

Business Continuity

Sole proprietorships may face challenges in scaling up the business due to limitations on resources, expertise, and capacity. Expanding operations, hiring employees, or entering new markets can be more difficult compared to businesses with multiple owners or investors.

Difficulty in Scaling

The owner has full control over all aspects of the business, including decision-making, operations, and management. This autonomy allows for quick decision-making and adaptation to changing circumstances.

Direct Control

Profits earned by the business belong solely to the owner, allowing for direct financial rewards. There's no need to share profits with partners or shareholders.

Direct Rewards

Sole proprietors enjoy flexibility in terms of business operations, working hours, and decision-making. They can adjust the business model, products, or services offered based on market demands without needing to consult partners or shareholders.

Flexibility

Sole proprietors often face challenges in accessing capital and resources compared to larger businesses. They may have difficulty securing financing from banks or investors, and their growth potential may be constrained by limited personal funds.

Limited Resources

As a single individual, the owner of a sole proprietorship may have limited expertise or experience in certain areas of business operations. This can pose challenges in areas such as marketing, accounting, or technology, where specialized knowledge may be required.

Limited Skills and Expertise:

Establishing a sole proprietorship is usually straightforward and inexpensive compared to other business structures. There are typically minimal legal requirements and administrative burdens.

Simple and Inexpensive Setup:

List 5 advantages of sole proprietorship

Simple and inexpensive set up, Tax benefits, flexibility, Direct control, Direct rewards

Sole proprietors may benefit from certain tax advantages, such as the ability to deduct business expenses from their personal income taxes. Additionally, they may have access to certain tax deductions and credits available to small businesses.

Tax Benefits

The owner of a sole proprietorship is personally liable for all debts and legal obligations of the business. This means that personal assets, such as savings, investments, and even the owner's home, may be at risk in the event of business losses or legal claims.

Unlimited Liability

List 5 disadvantages of sole proprietorship

Unlimited Liability, Limited resources, Limited skills and expertise, business continuity, difficulty in scaling