A sole proprietorship, also referred to as a sole proprietorship, sole trading partnership or simply sole proprietorship is a kind of business in which there really is no separate legal entity and the owner is solely responsible for the company. A sole proprietorship shares the same risks and rewards that any other business enjoys but there are two major differences. Firstly, there is no shareholder or creditors to pay off and no one to benefit from the success or failure of the business. Also, there will probably only be one manager and possibly one office. This means that there will not be any interaction between other people and there will probably be very few customers or employees.
There are various ways in which a sole proprietorship can be set up. For example, they can be incorporated as an Limited Liability Company (LLC), otherwise known as an ‘incorporated company’ or ‘business entity.’ They can be formed as a partnership or a limited liability partnership (LLP). They can also be created as a corporation by filing Articles of Organization with the appropriate regulatory body.
However, the most common way in which a sole proprietorship is run is by a sole proprietor. This is probably because it is the easiest way to set up a business. If all that is needed is to register a company (including incorporating it) and pay the necessary fees then setting up a sole proprietorship should cost no more than $500. Also, this form of business structure is very simple and easy to follow, so those with limited business experience can easily do it. Another advantage of a sole proprietorship is that there are no restrictions on how the partners make use of their assets and their income and expenditure.
But there are some disadvantages associated with sole proprietorship. One of them is that a sole proprietorship will have low profit margin. It is difficult to predict what the business structure will look like at the end of the year and there will not be any financial monitoring by the business owners. Furthermore, since there will only be one owner for the business, other business owners will have to compete with the sole proprietor for clients and for buyers.
Sole proprietor are also disadvantageous for those who wish to have limited liability. For this reason, many people who wish to start their own business opt to form partnership instead of sole proprietorship. Partnerships can provide the business owner with personal liability protection, retirement benefits, corporate debts and capital and payroll taxes. Moreover, the partner can delegate managerial and organizational tasks to other staff members. There will be a fixed salary, company tax and corporate obligations.
The key takeaway from this article is that you need to read related articles such as Key Takeaway to Sole Proprietorship for complete information on all the pros and cons of sole proprietorship as well as how to avoid these pitfalls. When you are able to manage your time better, enjoy your work and increase the amount of money that you make then you will find that this system is the best way for you to run your business. You will be able to enjoy greater flexibility in running your business while avoiding associated costs.