Forms of Business Ownership

Sole Proprietorship
A Sole Proprietorship is a type of business where there is no legal difference or distinction between the business and its owner. Legally, the name of a sole proprietorship is the name of the owner, unless a DBA is filed. Advantages include the ease and simplicity of creating a sole proprietorship, autonomy, and the benefits of financial freedom. Disadvantages are unlimited liability, continuity, limited resources, and raising working capital. * Liability – The liability of a sole proprietorship is a disadvantage for the company. The owner has unlimited liability which means he/she is personally liable for all the business’s obligations and debts. All of the owner’s personal assets and liabilities have no distinction from the business’s assets and liabilities. This also means that there is no legal protection against the claims of business creditors if the sole proprietor dies, which if the sole proprietor didn’t prepare properly with adequate insurance or funds to pay off debts, could leave the family wiped out financially. * Income Tax – Income Tax for a sole proprietorship can be seen as either an advantage or a disadvantage. On one hand since there is no separation between the sole proprietor and the business, they get taxed as a single unit. The sole proprietor can also reduce taxable income by charging off costs of doing business as expenses. But because all the profit made by the company is seen as personal income for the sole proprietor, the sole proprietor may be taxed at a higher rate (personal income tax is one of the highest rates of taxation). * Longevity or Continuity – A sole proprietorship dies when the sole proprietor dies unless preparation has taken place. A sole proprietor cannot sell the business. He/she can sell the business assets, but business cannot be transferred to another person as there is legally no difference between a sole proprietor and the company. An advantage is that there is no legal action