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A Sole Proprietorship
is a simple type of business structure that is owned and operated by the same
person. It does not involve many of the complex filing requirements associated
with other types of business structures such as corporations. Sole
proprietorships allow persons to report business income and expenses on their
individual tax returns.
What are some of the Advantages of a Sole Proprietorship?
There are many reasons
why a person would choose to start their business up using a sole proprietorship
structure. Some of the main advantages of sole proprietorships include:
- Ease of formation:
Starting a sole proprietorship is much less complicated than starting a formal
corporation, and also much cheaper. The proprietorship can be named after the
owner, or a fictitious name can be used to enhance the business’ marketing.
- Employment: Sole
proprietorships can hire employees. This can lead to many of the benefits
associated with job creation, such as tax breaks. Also, spouses of the business
owner can be employed without having to be formally declared as an employee.
Married couples can also start a sole proprietorship, though liability can only
assumed by one individual.
- Decision making:
Control over all business decisions remains in the hands of the owner. The
owner can also fully transfer the sole proprietorship at any time as they deem
necessary.
What are the Disadvantages of Sole Proprietorships?
Forming a sole
proprietorship does involve some risks, mainly to the owner of the business, as
legally speaking they are not treated separately from the business. Some
disadvantages of sole proprietorships are:
- Liability: The
business owner will be held directly responsible for any losses, debts, or
violations coming from the business. For example if the business must pay any
debts, these will be satisfied from the owner’s own personal funds. The owner
could be sued for any unlawful acts committed by the employees.
- Lack of
“continuity”: The business does not continue if the owner becomes deceased or
incapacitated, since they are treated as one and the same. Upon the owner’s
death, the business is liquidated and becomes part of the owner’s personal
estate, to be distributed to beneficiaries. This can result in heavy tax
consequences on beneficiaries due to inheritance taxes and estate taxes.
- Difficulty in
raising capital: Since the initial funds are usually provided by the owner, it
can be difficult to generate capital. Sole proprietorships do not issue stocks
or other money-generating investments like corporations do.
Contact us
If you have further queries, please contact Tannet
24 hours Malaysia hotline：603-21418908;
24 hours Hong Kong hotline：852-27837818;
24 hours Hong Kong hotline：86-755- 36990589;
Email: mytannet@gmail.com
TANNET GROUP : http://www.tannet-group.net, http://en.tannet.com.my