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