FORMS OF OWNERSHIP - OBJECTIVE 1 - DEFINE SOLE PROPRIETORSHIP AND EXPLAIN THE SIX ADVANTAGES AND SIX DISADVANTAGES OF THIS OWNERSHIP MODEL

Advantages

6 Advantages of Sole proprietorship

Disadvantages

6 Disadvantages

Sole proprietorship

A business owned by one person. - One owner has complete control - Profits and losses flow directly to the owners and are taxed at individual rates - Owner has unlimited personal liability for the business's financial obligations - Easy to set up; typically requires just a business license and a form to register the company name.

Flexibility and Control

As a sole proprietor, you aren't required to get approval from a business partner, your boss, or a board of directors to change any aspect of the business strategy or tactics. Sole proprietors can make their own decisions. As sole owner, whatever financial value exists in the business is yours. You can keep it, sell it, give it away or bequeath it to your children.

No employee benefits for the owner

No perks of working for somebody. You have to pay for it on your own No sick leave Health insurance Paid vacations

Financial Liability

Owner & business = legally inseparable which leads to unlimited liability. Any debts incurred come out of the pocket of the Sole proprietor. They could lose personal items etc

Limited managerial perspective

Requires expertise in accounting, marketing, IT, business law etc. Few individual owners posses enough skills and experience to make consistently good decisions. SP's can turn to networks, support groups etc

Fewer limitations on personal income

Sole proprietors keep all the after-tax profits the business generate; if the business does extremely well, they do well, if not, no pay check.

Demands on the owner

Stressful, you can't take paid vacations Long hours Making all major decisions Solving all the major problems Can feel isolates & unable to discuss problems with anyone

Privacy

Beyond filing tax returns and certain other government reports that may apply to specific businesses, Sole proprietors generally aren't required to report anything to anyone unless you apply for a loan or solicit investors.

Simplicity

Easy to establish and requires far less paperwork than other structures. Only legal requirement is obtaining the necessary business licenses and permits required by the city, county and state.

Resource limitations

Fewer financial resources and fewer ways to get additional funds from lenders or inversions because they depend on a single owner. = Lack of capital

Single layer of taxation

Income tax is a straightforward matter. Federal government doesn't recognize the company as a taxable entity. All profits flow to the owner, where it is treated as personal income and taxed accordingly

Personal satisfaction

Satisfaction of working for themselves. Satisfaction from reaping rewards after taking risks. Seeing the fruits of their labour brings personal satisfaction.

Finite life span

When the SP dies, so does the business. Though some people pass it on to heirs, the owners death may mean the demise of the business due to the fact that the founders unique skills may have been crucial to its successful operation.