When starting a business, one of the first decisions you’ll need to make is what type of entity it will be. There are several types of business entities to choose from, but a sole proprietorship is one of the most common. This blog post will discuss the basics of a sole proprietorship: what it is, its characteristics, pros and cons, and how to set it up.
A sole proprietorship is a business owned and operated by one person. The owner is personally liable for all debts and obligations of the company. A sole proprietorship is the simplest and most common type of business entity. For this reason, it is easy to set up and requires little paperwork or assistance from an attorney.
The Benefits of Running a Sole Proprietorship
The owner has complete control over the business. This autonomy makes it fast and easy to make decisions regarding the business instead of a partnership or corporation where there may be disagreements or a need for consensus among the owners.
The owner receives all of the profits from the business. Being solely run, the owner gets to keep every cent of profits.
The owner is personally liable for all debts and obligations of the business. This means that if lawsuits or debts arise, the owner’s personal belongings are at risk.
Drawbacks of A Sole Proprietorship
They often have trouble raising capital. Because sole proprietorships are small and offer limited ownership, finding investors or getting loans from banks can be challenging.
The businesses tend to be less stable. Without the backing and support of partners or shareholders, a sole proprietorship can have a hard time weathering tough economic times.
Another massive issue with sole proprietorships is the matter of continuity. If the owner becomes sick or dies, the business will likely die with them unless proper plans are put into place.
All in all, a sole proprietorship is a great way to get started in business. It’s simple to set up, and you have complete control over the company. Just be aware of the risks involved before taking the plunge. If you plan on running a sole proprietorship, it is absolutely crucial to have an estate plan in place to ensure the continuity of your business. Our practice specializes in estate planning, and we would be delighted to help!
Do you have any questions about sole proprietorships? Get in touch with us today!