Sole Proprietorships at a Glance
With great power comes great responsibility...
- The simplest form of business, but perhaps the most risky.
- Owned by one person who has total control over the entire business.
- The business and the owner are one and the same. If the business is sued, the owner's personal assets are at stake.
- Profits and debts all belong to the owner.
- Business income is reported on the owner's personal income taxes.
- The simplicity of this structure and lack of paperwork is one of the main reasons some business owners choose to be a sole proprietor. It is the easiest and least expensive structure.
- The owner has 100% control over business decisions, reducing any potential bottleneck in operations due to managerial disagreements.
- Unlimited Liability – Keep in mind, the easiest path may not be the best path. The owner’s personal assets (their house, car, and checking account) are all at risk of being lost if the business is sued. This risk also includes any liabilities that occur as a result of an employee’s actions.
- Limited Financing – Sole proprietors have limited options when it comes to raising money to fund their business. The owner is generally dependent on bank loans, personal loans or even investing their own money "out of pocket."