Advantages and Disadvantages Of Sole Proprietorship

Just like any other businesses, there are also advantages and disadvantages of sole proprietorship. That is why it is very important that when you want to enter into sole proprietorship, you look for this advantages and disadvantages in order to make the right decision.

Simply put, sole proprietorship is a business owned and managed by one person.

ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIP

ADVANTAGES
1. EASY FORMATION
Sole proprietorship is very easy and simple to form because you don’t need so much capital to start. Also, unlike other businesses where you need a lot of regulations to start, the only thing that you need to start a sole proprietorship is just a license or in some cases, just a permission from the authorities is needed to start.

2. CONTROL OVER THE BUSINESS
In sole proprietorship, the owner takes all the decisions and execute it himself. He or she does not need to schedule any time to take decision to manage the business. In other business where one need to take decision with others, they will have to make sure the members are available to do that. So in their absence, the decision will have to be posponed. This will go a long way to reduce productivity.

3. SECRECY
Since the sole proprietor controls every aspect of the business, he or she is able to keep everything to himself. He is not under any obligation to publish his account to the public like other co-operations. This means that your secrete with which you operate the business will not be known to your competitors to compete with you.

4. EASY DISSOLUTION
Since the business is owned by just one person (the sole proprietor) and with no laws on how the business is to be dissolved, the owner has the right to stop operating anytime the business is not making profit.

5. IT GIVES YOU EXPERIENCE
With all the advantages enumerated above, you realize that starting a sole proprietorship, is not difficult. It means that if you have a dream of starting a co-operation or a limited liability company in the future, you can start sole proprietorship to gain the needed experience that will serve as a springboard to which ever company you want to start.

6. FREE FROM GOVERNMENT CONTROL

7. PROFIT
Since the business is owned and managed by one person, all the profits that the business makes go to him or her. For that matter the person always try his or her best to succeed by making more profit. This cannot be said of other business because, the business is being managed by other people.

DISADVANTAGES
1. LACK OF CONTINUETY
Once the sole owner dies, or incapacitate, the business seizes to continue. Even if the business is pass onto a different person, he may not be able to manage it like the owner.

2. MANAGEMENT SKILLS
It is said that knowledge is not in one person’s head. And so if one person is managing the business, he may face some challenges in some aspects of the business which he or she does not know much about.

In conclusion, If you take a closer look at the advantages and disadvantages of sole proprietorship enumerated above, you can see that the advantages outwit the disadvantages.Also, you can also find ways and means to overcome the disadvantages.

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Sole Proprietorship Examples

The easiest business structure that you can form is the sole proprietorship. This is a situation where a business is owned by an individual or a couple. According to statistics, sole proprietorship examples are a core part of most economies in the world as they help governments to generate trillions of dollars every year. They can be found in almost every category of the econommy.

A person is automatically considered to be a sole proprietor if he offers services or provides goods to people without getting into any form of partnership. Such a person is considered a sole proprietor by default. This is the type that does not form a company even though he delivers services. According to the law, such people are required to pay self employment taxes and declare all their income.

Small shops and boutiques are also considered under this category. They are the type that can be found in every locality. It could be a hardware store, a small cafe, a retail shop or just any other small business. They are usually owned by families or individuals. The only way they seize to be a sole proprietorship is when the owners declare them to be part of a chain of other businesses or companies.

Musicians and artisans are sole proprietors too. This is more so if their productions are availlable in music stores, galleries or just any other place that they can sell them. Such people often receive straight payment and own all the rights to the work that they do. Members of bands that perform at local clubs and who get paid every time they are invited to perform are also considered to be sole proprietors.

Another one of the most common sole proprietorship examples are the independent contractors. These are the ones who get paid for contracts that they complete. They often are considered to be self employed because even though they do work on behalf of other companies, they are not employed by the companies. They therefore must declare their income and pay taxes accordingly.

This can be a little complicated at times. For instance, there are contractors who are fully employed by companies and who are paid a salary. However, apart from their regular job, they also engage in other private activities in the evening and during weekends. The extra activies are therefore considered to be self employment and they fall under sole proprietorship. Such contractors could be in the IT sector, building and construction or electricians. There are many other sectors that have such contractors too.

People who works as sales representantives but who are paid commissions on the products that they sell are also sole proprietorship examples. This applies even to those that have contracts with the companies but who are paid on commissions. The reasoning behind this is that the contracts only bind them to receiving the specified amount per product as agreed with the company. However, what they earn depends on their own efforts and they therefore are more self employed.

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What is a Sole Proprietorship: A General Perspective

There are many different types of business entities. The status with which a business is recognized defines the structure of that business. Today we will talk about Sole Proprietorship. So what is a Sole Proprietorship? Basically it is a type of business which is owned by a single person, it is not registered with the government as a private/ public limited company also there are no shares available for this kind of business for either public or other people who work in this kind of business.

As discussed above Sole Proprietorship is owned by a single person who is liable for anything related to its entity like the income tax of his/her as well the business are taken as a single unit and the person will be accountable for them to the authorities. Similarly he/she will be responsible for all kinds of over dues of that business.

It is very simple to start a Sole Proprietorship and sustaining it is also as simple as anyone can imagine. Just for an example anyone who carries out services or supplies for offices and is not getting any pay for it rather he/she will have all the profit in his/her pockets earned from the services/supplies he/she will make. This is what a sole proprietorship for that person is.

So what are the advantages of running this kind of system? Well:
It is very easy to setup. Not much investment is required to start a solo business. It is very simple to run and look after, all a person has to do is to work hard and put all his/ her efforts rather than waiting for others to come to him/ her for anything. Like, for a shop keepers well managed and promoted shop will have more customers than others.

Follow simple procedures to get it registered and legalized by authorities.No lengthy steps to follow for on time payment of taxes. The owner of this kind of structure is responsible of all kind of decisions and he/ she do not need to depend on others for decision making. All the profit comes into the pocket of the owner and there are no partners with which it will be shared. The business is run without any intervention by others; all the controls are in the owner’s hands. All the facts and the figures can be kept hidden no one can ask about them until the owner reveals them him/herself. Better services can be offered to the customer as the owner of the business not dependent on worker much of the time. Can be easily convertible into Limited company if the business grows rapidly and from a little entity to a large scale structure. It also helps in creating job opportunities for people.

To conclude our perspective on what is a sole proprietorship? Anyone who wants to have his/her own business rather than working for someone else as an employee can easily start his/her business with very little legal as well as investment requirement; all they will need is to put his/her efforts and fruits will be there to collect. This is the best way to get ourselves employed and streamlined in practical life.

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Advantages Of Sole Proprietorship

Sole proprietorship is a form of business entity in which you are the only owner of the business. You run the business according to your decisions. You do not need to have any formal agreements with anybody in case you own and run a sole proprietorship. People often ask what are the advantages of sole proprietorship and whether it comfortable to run such business entities with less capital. Let us look into what are the merits of sole proprietorship compared to other types of business entities.

In the case of a sole proprietorship you are the owner and as such all the decision making power can be made by you. You can start the business as and when you have decided and there is no need to wait for somebody else to cooperate as a good partner. There will not be any compulsion from anybody else. Moreover you do not need to answer to anybody else in case the business is suffering from loss. In addition to that you can take the entire profit and there is no sharing of profit between/among partners. You can start and wind up the business as per your own decisions. Another advantage is that with only less capital requirement you can start a sole proprietorship. In short, you can enjoy absolute freedom in your decisions when you run a sole proprietorship.

One of the advantages of sole proprietorship relates to the tax compliance. You can file the tax in the same way as you consider your personal income. There is no need to file corporate tax separately.

Sole proprietors often feel that they are getting profits only with their own work. This kind of feelings can give a kind of self motivation to such profit making sole proprietors.

There will be scenarios where decisions are to be taken in the daily affairs of a sole proprietorship. In such cases the owner can make the decisions quickly without waiting for someone else’s interest. The owner can make decisions and it will boost his confidence to carry on with the business.

Another advantage of sole proprietorship is related with the maintenance of business secrecy. It is true that every businessman has his own unique way of doing business. As there is no additional owners, a sole proprietor does not need to worry about leaking of his business secrets to his competitors.

One of the most important advantages of sole proprietorship is that it gives the owner a job opportunity. He might be unemployed in earlier days. After starting a sole proprietorship he gets a job. Moreover, he can give employment to others also and thereby increase the total employment availability in the economy.

These are the important advantages of sole proprietorship. There are many people who like to start a sole proprietorship in various kind of business sectors. If you have enough capital that is needed to start a business and if you can control a business with proper decision making and management skills then you can start a sole proprietorship and enjoy all the advantages that are mentioned above.

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by admin on February 13, 2012  •  Permalink
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