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Advantages and disadvantages of Proprietorship

A sole proprietorship is a business owned and managed by a single individual. It is the most common and simplest type of business entity. A sole proprietorship can have multiple people operating the business, but it must have one sole owner. Sole proprietorships have several advantages over other business entities. They are easy to form, and the owners enjoy sole control of the business profits. However, they also have disadvantages, the biggest of which being that the owner is personally liable for all business losses and liabilities. With minimal licenses to obtain or separate forms to follow, sole proprietorships are relatively easy to form, easy to maintain, and easy to dissolve.

There is no separate cost to establish a sole proprietorship. A sole proprietorship is established when an owner begins operating his business. There are no separate licenses to obtain to form a sole proprietorship. The sole proprietorship will be maintained so long as the owner keeps doing business.

Here in this article let us understand what are the advantages and disadvantages of Sole proprietorship registration.

Advantages and disadvantages of Proprietorship

Below mentioned are the advantages of Proprietorship firm registration

  • Beginning a sole proprietorship is easy. Unlike other business structures, starting a sole proprietorship requires less paperwork and time to create a legal sole proprietorship.
  • It is cheap to start a sole proprietorship. Where other business structures have increased fees and filings to open for business, sole proprietorships tend to be affordable models to start and maintain.
  • There are some tax benefits for a sole proprietorship. Instead of the business having to file its own tax return, sole proprietors claim businesses gains and losses on their own individual tax return. Also, the sole proprietorship is taxed using individual income tax rates rather than corporate making it simpler and cheaper to comply with your tax obligations.
  • Sole proprietors can employ others and grow their business. Sole proprietorships can hire others and enjoy the tax benefits from doing so. Additionally, spouses of the owner can work for the sole proprietorship without being declared as an employee.
  • Owners have complete and direct control over all decision making. Because the owner is the business, the owner makes all decisions for the business rather than sharing power with a partner or corporate board. This allows owners the freedom to drive the business in the direction they desire.

Below mentioned are the disadvantages of Sole proprietorship firm registration

  • Owners are fully liable. If business debts become overwhelming, the individual owner’s finances will be impacted. When a sole proprietorship fails to pay its debts, the owner’s home, savings, and other individual assets can be taken to satisfy those debts.
  • Self-employment taxes apply to sole proprietorships. Owners must pay self-employment taxes on the business income.
  • Business continuity ends with the death or departure of the owner. Because the owner and the sole proprietorship are one, if the owner dies or becomes incapacitated then the business dies with them and the money and assets of the business become part of the individual’s estate. The assets and money are subjected to inheritance taxes and can have a great impact on employees of the sole proprietorship.
  • Raising capital is difficult. Initial funds of the business are generated by the owner and raising funds for the business can be hard since they cannot issue stocks or other investment income. Loans may also be difficult if the owner does not have enough credit to secure additional money.

Here in this article, we have understood the advantages and disadvantages of Proprietorship firm registration, it will surely be useful for you to grow your business.

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