Liability-First is a concern for you, liability, say for instance, in the situation of a contract employee. This could end up being a major concern for you. It is one of the larger disadvantages of a sole proprietorship. When it comes to liability, you, your finances, and your assets, are not kept separately. What this means to you and your family is if anything ever happens, all of the liability and expenses falls to you. Huge drawback.
Income Taxes- Next is income taxes. This is something I would actually consider an advantage. You and your business are taxed as one unit. You also have the ability to reduce your income tax by writing off your expenses.
Longevity or continuity of the organization.- Longevity and continuity of your sole proprietorship is, well, nonexistent. Since you are the business, when you are no longer here, your business is no longer here. Again, another drawback.
Control: Whether or not control is an advantage or disadvantage is all up to you to decide. You have complete control over everything. Since you don’t have a partner, boss, board, or shareholders to answer to, you have complete control over your business. I see this as an advantage.
Profit retention is all yours. You keep all of your profit, and will not be splitting it with anybody. This is another advantage.
Location is another great advantage of a sole proprietorship. It is fairly simple to move your operation. Say for instance, you just had a new grandkid in another state, and want to move closer. You simply end your sole proprietorship in your current state, and apply for a new one the next state. Easy as that.
Next we can compare a General Partnership to what your current Sole Proprietorship. And we will go step by step making it a very easy comparison.
Liability for a General Partnership is the same as for a Sole Proprietorship. You have no separation when it comes to you and the business.
Taxes for a General Partnership are similar in a sense to the Sole Proprietorship, being a pass through entity. You and your partner will be able to write off expenses to decrease your taxable income. No federal income taxes are imposed on the partnership.
When it comes to longevity, General Partnerships don’t have much. Say, for instance you have a partner, who passes away, the partnership is immediately dissolved. This can have create serious problems for the remaining partner or partners. There are plans that can be put into effect to protect all concerned parties. If this is the route you decide to take, I highly recommend that you look into a buy-sell agreement.
When it comes to the topic of control, you can easily see what the difference is going to be between a General Partnership and a Sole proprietorship. Being that you will have a partner, you will have to make decisions as a team. You may set forth guidelines in the beginning, of who will be in charge of different topics and decisions. As you can see, this could be bad, if you want to have complete control, or great, if there are decisions you’re not exactly the best at making.
General partnerships have split profit retention. You will be splitting the profits equally between all of the partners. This isn’t exactly bad, sense you will also be sharing the responsibilities with those same partners, as well as sharing the work load.