Posted: September 30th, 2022

Discuss the advantages and disadvantages of a sole proprietorship.

Advantages and Disadvantages of a Sole Proprietorship
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A sole proprietorship refers to a quite simple enterprise construction the place one particular person acts as the proprietor and the operator of a given enterprise or enterprise (Sitarz, 2005). The sole proprietor takes duty for all the points of his enterprise whereas reaping all the income generated from his enterprise. Since there isn’t a authorized distinction between the operator and the enterprise, Sitarz (2005) provides that the operator takes up direct management of all the proprietorship’s actions whereas remaining accountable for all the enterprise money owed. Different enterprise fashions embrace restricted legal responsibility firms (LLC), companies and various partnerships, amongst others. A sole proprietorship differs from these different enterprise fashions in the sense that whereas a sole proprietor stays solely accountable and in cost of all the enterprise actions, the tasks in different enterprise fashions are shared between completely different individuals or stakeholders (Sitarz, 2005). Furthermore, Sitarz (2005) provides that in an LLC, the monetary duty is a legal responsibility of the LLC, whereas in a sole proprietorship, the proprietorship is held liable. Like some other mannequin, a sole proprietorship has its advantages and disadvantages, as mentioned under.
The Advantages of Sole Proprietorships
First, in comparison with different enterprise buildings, beginning up a sole proprietorship may be described as a simple activity as a result of it requires much less time and paperwork. Furthermore, a sole proprietorship tends to be low-cost to begin in comparison with different enterprise fashions that require excessive fillings and charges to begin (Niziołkiewicz, 2019). This reality makes sole proprietorships inexpensive fashions develop and preserve.
One other benefit of a sole proprietorship is that it enjoys some tax advantages. As an alternative of a enterprise having to file tax returns, a sole proprietor claims its enterprise loses or good points from its proprietor’s tax returns (Niziołkiewicz, 2019). Furthermore, particular person revenue tax charges are used to tax sole proprietorship as a substitute of company tax charges, which permits the enterprise to have a cheaper and less complicated activity to adjust to its tax obligations (Niziołkiewicz, 2019).
Lastly, in a sole proprietorship, the homeowners are likely to have direct and full management over all the enterprise determination making course of. Since the proprietor of the sole proprietorship is the enterprise, it implies that the proprietor could make all enterprise selections as a substitute of having to share this duty with a company board or associate (Niziołkiewicz, 2019). As such, the proprietor enjoys the freedom to take the enterprise of their desired route.
Disadvantages of Sole Proprietorships
A drawback to a sole proprietorship is that the homeowners take full legal responsibility. This suggests that in conditions the place enterprise money owed have grow to be overwhelming, the funds of the proprietor are impacted instantly (Niziołkiewicz, 2019). Moreover, Niziołkiewicz signifies that if a sole proprietorship is unable to pay its debt obligations, the proprietor’s property are in danger of being seized to service these money owed.
One other drawback is that the continuity of a sole proprietorship enterprise ends with the departure or loss of life of its proprietor. Which means the proprietor’s property or cash from the proprietorship are subjected to inheritance, which may have a vital impression on the staff of the sole proprietorship (Niziołkiewicz, 2019).
Lastly, sole proprietorship tends to have a troublesome time elevating their enterprise capital. The preliminary startup capital is usually from the enterprise proprietor’s pocket as a result of they can’t be capable to concern any shares or different types of funding revenue (Niziołkiewicz, 2019). Furthermore, Niziołkiewicz provides that this enterprise mannequin may discover it very troublesome to acquire loans, particularly if the enterprise proprietor lacks sufficient credit score rating to safe any extra enterprise capital.

References
Niziołkiewicz, M. (2019). Remodeling a sole proprietorship into a restricted legal responsibility firm – chosen tax points. Roczniki Administracji I Prawa, 2(XIX), 309-321. DOI:10.5604/01.3001.0014.0446
Sitarz, D. (2005). Sole proprietorship: Small enterprise startup equipment.

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