Advantages and Disadvantages of Sole Proprietorship

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Advantages and Disadvantages of Sole Proprietorship

By | October 2011
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Advantages and Disadvantages of Sole Proprietorship

Profits and Losses – Advantages: Proprietor receives all the profits because he or she takes all the risks.

Disadvantages: Losses are not shared.

Liability - Disadvantages: 1) The proprietor has unlimited liability. 2) If the firm is unable to pay its bills, the proprietor can be force to sell personal assets as well as the business to pay debts.

Management – Advantages: 1) Decisions on starting and running the business can be made quickly. 2) Business operations are less complicated than other types of businesses. 3) There are generally fewer government regulations.

Disadvantages: A proprietor must handle all decision making, even for unfamiliar areas of the business. This is a severe problem for many sole proprietorships.

Taxes - Advantages: Taxes are usually low because a proprietor pays only personal income taxes on profits.

Personal Satisfaction – Advantages: 1) The proprietor has high satisfaction in being his or her own boss. 2) The owner can make the business into whatever he or she wants it to be.

Disadvantages: 1) Running a sole proprietorship is demanding and time-consuming. 2) If the proprietor does not enjoy responsibility, he or she will find ownership a burden.

Financing Growth– Advantages: Proprietors can obtain credit relatively easily. Lenders know they can take over the assets of the business as well as personal assets of the proprietor if the loan is not paid back.

Disadvantages: 1) A sole proprietor must rely on his or her own funds plus funds that can be borrowed. 2) Borrowing large amounts can be difficult.

Life of the Business – Disadvantages: 1) If the proprietor dies, goes bankrupt, or is unwilling or unable to work, the business will probably fail. 2) Uncertainty about the future increases the risk both to employees and creditors.

Advantages and Disadvantages of Partnership

Profits and Losses – Advantages: 1) Losses are shared. 2)...
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