- THE SIMPLEST FORM OF BUSINESS, BUT PERHAPS THE MOST RISKY.
- OWNED BY ONE PERSON WHO HAS TOTAL CONTROL OVER THE ENTIRE BUSINESS.
- PROFITS AND DEBTS ALL BELONG TO THE OWNER
- IF THE BUSINESS IS SUED,THE OWNER'S PERSONAL ASSETS ARE AT STAKE
- LIMITED IN TERMS OF FINANCIAL FUNDING
- THE BUSINESS INCOME IS REPORTED ON THE OWNER'S PERSONAL INCOME TAXES
KEY FEATURES
The owner and the business are one and the same. A sole proprietorship is owned by a single individual who has exclusive control over all business aspects.
The owner is entitled to all profits, but is also personally responsible for all of the business’ debts and liabilities.
ADVANTAGES
The simplicity of a sole proprietorship is one of the main reasons some business owners choose to be a sole proprietor. It is the easiest and least expensive structure.
Owner has 100% control over business decisions.
DISADVANTAGES
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."
TAXATION
Pass-through Taxation – The income generated by the business is taxed as the owner’s personal income.
Self-employment Tax - While the business itself is not taxed, the sole proprietor is subject to the taxes of both an employer and an employee. This means that a sole proprietor pays twice as much in FICA taxes.
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If legal advice or other expert assistance is required, the services of a professional should be sought.
